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.
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 too 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. The finance ministry banned the import of vehicles for all state institutions for one year and said public servants will not be allowed to import cars at concessionary duty rates for six months.
Banks were also ordered to restrict credit to finance the purchase of vehicles, air conditioners, perfumes, mobile phones and TV sets, among other luxury consumer goods.