Pakistan wants to cool zooming inflation by raising rates

The central bank acting governor says that Pakistan is hiking rates to cool zooming inflation

May 26, 2022: -On Monday, the soaring inflation in Pakistan prompted the central bank of the country to hike the interest rate for the second time in two months. the State Bank of Pakistan’s acting governor told CNBC.

In recent months, consumer prices have spiked, and Pakistan needs to cool its economy, Murtaza Syed from State Bank of Pakistan told CNBC. He notes that inflation reached a two-year high of 13.4% in April.

The central bank is hiking its rate by 150 basis points to 13.75%, which it said should “keep inflation expectations anchored” and help moderate demand to a “sustainable pace.”

“The economy could do with a few cooling, and this decision yesterday was a step in that direction,” Syed told CNBC on Tuesday. “Unlike many other emerging markets, Pakistan had a very shallow recession after Covid [began]. The economy contracted by just 1%, quite a good outcome compared to what happened worldwide. And since then, the last occasional years, we’ve witnessed robust growth.”

Pakistan’s GDP was 5.7% in the previous year, he said. In comparison, according to the International Monetary Fund, Asia’s GDP for 2021 was 6.5%.

On Monday, the central bank took on a similar tone in its monetary policy statement, saying that the economy’s “sustained and vigorous rebound” after the Covid shock means policy tightening is needed to counter elevated inflation.

The central bank said that fresh food items and core inflation primarily drove the country’s headline inflation of 13.4% in April.

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Pakistan wants to cool zooming inflation by raising rates