Pakistan central bank raises key policy rate by 300 bps to 20 percent

The logo of the State Bank of Pakistan (SBP) is pictured on a reception desk at the head office in Karachi, Pakistan July 16, 2019. (Photo courtesy: REUTERS/FILE)
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Updated 02 March 2023
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Pakistan central bank raises key policy rate by 300 bps to 20 percent

  • Key rate of the State Bank of Pakistan now stands at 20 percent, highest level since October 1996
  • In January, bank raised rate by 100 bps to 17 percent but has now raised rates by total of 1025 bps

KARACHI: Pakistan’s central bank raised its key interest rate by 300 basis points on Thursday, exceeding investor expectations, as the cash-strapped country attempts to encourage the International Monetary Fund to release critical funding.

The key rate of the State Bank of Pakistan (SBP) now stands at 20 percent, its highest level since October 1996. Investors polled by Reuters had expected a rate hike of 200 bps.

The central bank had brought forward its policy meeting from an original date of March 16, with local media saying the rate hike was a key requirement to get the IMF funding released.

In its last policy meeting in January the bank raised the rate by 100 bps to 17 percent. It has now raised rates by a total of 1025 bps since January 2022.

“The MPC noted that the recent fiscal adjustments and exchange rate depreciation have led to a significant deterioration in the near term inflation outlook and a further upward drift in inflation expectations, as reflected in the latest wave of surveys,” the central bank said in a statement.


Pakistan’s Afghan salvo risks turning ‘open war’ into long crisis

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Pakistan’s Afghan salvo risks turning ‘open war’ into long crisis

  • Nuclear-armed Pakistan has a formidable military of 660,000 active personnel, backed by a fleet of 465 combat aircraft
  • But the Taliban have the option to lean on insurgent groups like the TTP and the BLA to move beyond border skirmishes

KARACHI: Weeks after the Taliban’s lightning offensive in 2021 wrested control of Afghanistan from a US-led military coalition, Pakistan’s then intelligence chief flew into the capital Kabul for talks, where the serving lieutenant general told a reporter: “Don’t worry, everything will be okay.”

Five years on, Islamabad — long seen as a patron of the Taliban — is locked in its heaviest fighting with the group, which Pakistan’s Defense Minister Khawaja Muhammad Asif described on Friday (February 27) as an “open war.”

The turmoil means that a wide swathe of Asia — from the Gulf to the Himalayas — is now in flux, with the United States building up a military deployment against Afghanistan’s neighbor Iran even as relations between Pakistan and arch rival India remain on edge after four days of fighting last May.

At the heart of the conflict with Afghanistan is Pakistan’s accusation that the Afghan Taliban provides support to militant groups, including the Tehreek-e-Taliban Pakistan (TTP), that have wreaked havoc across inside the South Asian country.

The Afghan Taliban, which has previously fought alongside the TTP, denies the charge, insisting that Pakistan’s security situation is its internal problem.

The disagreement is a reflection of starkly incompatible positions taken by both sides, as Pakistan expected compliance after decades of support to the Taliban, which did not see itself beholden to Islamabad, analysts said.

“We all know that the government in Pakistan supported the Taliban, the Afghan Taliban for many years, in the 90s and the 2000s, and provided havens to them during the period where the US and NATO were in Afghanistan.

So there’s a very close relationship between the Taliban and Pakistan,” said Jennifer Brick Murtazashvili, a political scientist at the University of Pittsburgh and an Afghanistan expert.

“It’s really surprising and shocking to many of us to see how quickly this relationship deteriorated,” she said.

Although tensions have simmered along their rugged 2,600-km (1,615-mile) frontier for months, following clashes last October, Friday’s fighting is notable because of Pakistan’s use of warplanes to hit Taliban military installations instead of confining the attacks to the militants it allegedly harbors.

These include targets deep inside the country in Kabul, as well as the southern city of Kandahar, the seat of Taliban supreme leader Hibatullah Akhundzada, according to Pakistan military spokesman Lt. Gen. Ahmed Sharif Chaudhry.

The clashes are unlikely to end there.

“I think in the immediate aftermath, I think hostilities will subside. There will be, I hope there will be a ceasefire through mediation. But I do not see these tensions subsiding in the foreseeable future,” said Abdul Basit,  an expert on militancy and violent extremism at Singapore’s S. Rajaratnam School of International Studies.

Nuclear-armed Pakistan has a formidable military of 660,000 active personnel, backed by a fleet of 465 combat aircraft, several thousand armored fighting vehicles and artillery pieces.

Across the border, the Afghan Taliban has only around 172,000 active military personnel, a smattering of armored vehicles and no real air force.

But the battle-hardened group, which took on a phalanx of Western military powers in 2001 and outlasted them, has the option to lean on insurgents like the TTP and the Baloch Liberation Army (BLA), moving beyond border skirmishes.

Based in Pakistan’s largest and poorest province of Balochistan that borders both Iran and Afghanistan, the BLA has been at the center of a decades-long insurgency, which in recent years has staged large coordinated attacks.

Pakistan has long accused India of backing the insurgents, a charge repeatedly denied by New Delhi, which has retained a robust military deployment along the border since last May.

Although a raft of countries with influence — including China, Russia, Turkiye and Qatar — have indicated an openness to help mediate the conflict, all such efforts have been met with limited success so far.