Pakistan increases key rate to 3-year high

Pakistan raised its key rate to the highest in three years, making it Asia’s most aggressive interest rate hiker this year as the country’s finances continue to dwindle.

The target policy rate was raised for the third straight meeting to 8.5 per cent from 7.5, the State Bank of Pakistan said.

Policymakers have already raised rates by 1.75 percentage points since November, taking the discount rate to the highest in more than three years.

The move follows emerging markets from Argentina to Indonesia that are trying to fight currency turmoil triggered by tighter US Federal Reserve policy.

Home-grown crisis

However, Pakistan is dealing with a crisis that’s more home-grown. Dwindling foreign exchange reserves and a current account deficit blowout have aggravated economic pressures as a political transition following July elections has slowed economic decision making.

The rate hike “is another signal that they are going to the International Monetary Fund,” said Ashfaque Hasan Khan, dean at the business school of Islamabad’s National University of Sciences and Technology and an economic adviser to the government.

Meanwhile, Sri Lanka also announced a raft of restrictions in a bid to slow down imports of cars and luxury goods as the country faces a foreign exchange shortage.