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Inflation

Pakistan's central bank raises key rate 100 basis points to 16%

Policy committee says inflation is 'more persistent than expected'

People in Karachi wait their turn to buy low-priced bun kababs in June.   © Reuters

ISLAMABAD (Reuters) -- Pakistan's central bank raised its key policy rate by 100 basis points to 16% on Friday, the bank said after a meeting of its monetary policy committee.

"This decision reflects the MPC's view that inflationary pressures have proven to be stronger and more persistent than expected," the central bank said in a statement.

The bank had kept the rate unchanged at its last two meetings in October and September. Including the latest increase, the bank has raised the key rate by 625 basis points cumulatively in 2022.

The South Asian nation has been grappling with persistently high inflation, with the consumer price index registering a 26.6% year-on-year rise in October, even as devastating floods and attempts to maintain fiscal discipline have resulted in a sharp economic slowdown.

"Looks like [the State Bank of Pakistan is] more concerned with rising inflation. Moreover, [International Monetary Fund] talks for next tranche are under way and are delayed. That may have also compelled the committee to take this step to fight inflation," said Mohammad Sohail, an analyst with Topline Securities.

The SBP said it was reaffirming its gross domestic product growth projection of about 2% for fiscal 2023 and also its current-account deficit forecast of about 3% of GDP, but said it now expects higher food prices and core inflation to push average inflation to 21% to 23%, versus 18% to 20% previously.

Devastating floods that peaked in August killed over 1,700 people in Pakistan and caused billions of dollars in damage to infrastructure as well as agricultural land.

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