Brig. (retd) Aslam Khan, Chairman of Pakistan Economy Watch (PEW), on Wednesday, supported the decision of the State Bank of Pakistan (SBP) to hike interest rates by one percent. SBP raised the key policy rate to 22% a day after the passage of the revised budget on the demand of the International Monetary Fund (IMF), he said. In a statement issued today, he said that SBP raised its benchmark interest rate by 100 basis points to 22 percent at an emergency meeting to rescue an IMF program that expires on June 30.

He added that the central bank had raised its main rate by 12.25 percentage points since April 2022, mainly to curb soaring inflation.

He said higher interest rates would increase the debt servicing burden on the government and the private sector. Still, if this leads to the resumption of the stalled IMF programme, the positives will outweigh the negative implications.

Upward revisions in taxes, duties, and increased petroleum levy rate in the recently approved fiscal 2023-24 budget will trigger inflation while allowing imports to eat up forex reserves. Therefore, an interest rate hike was necessary.

The central bank also believes that the decision would help to bring down inflation towards the medium-term target of 5–7% by the end of FY25.

Removing curbs on imports has increased risks for Pakistan as consignments stranded at the port are worth more than the forex reserves held by the SBP, which is alarming, he said.

SBP has claimed that it would continue to carefully monitor economic developments and take appropriate action to achieve the objective of price stability over the medium term if necessary.