Pakistan has agreed to increase its policy rate in order to clinch the crucial IMF deal needed urgently to avert the looming default, reported 24NewsHD TV channel. 

According to officials in the finance ministry, the talks between the International Monetary Fund and Pakistan are continued and the global lender is thoroughly looking into every point.

The officials confirmed that Pakistan has agreed to increase its interest rate by 2%. The current policy rate is 17%.  

The State Bank of Pakistan is expected to raise policy rate by 200 basis points in an off-cycle review this week. 

“We support the use of monetary policy to rein in inflation, anchor inflation expectations, and support the exchange rate,” said Esther Perez Ruiz, the IMF’s resident representative in Pakistan, in an email to Reuters.

The IMF official further said "As such, monetary policy has an important role to play in taming inflation and preserving the purchasing power of Pakistanis, first and foremost the poor and most vulnerable."

The finance ministry officials further said that issues related to (circular debt in) power sector have also been sorted. “After resolving power sector issues, the staff-level agreement (SLA) with the IMF will be signed,” they added. 

The officials said that the finance ministry has briefed the IMF about the sources of foreign reserves the country is going to receive till June.  

They also said that no political issues were discussed during talks with the IMF. 

The cash-strapped country is undertaking key measures to secure the IMF funding, including raising taxes, removing blanket subsidies, and artificial curbs on the exchange rate.

According to reports, the next meeting of the central bank's monetary policy committee is scheduled for March 16. Off-cycle rate reviews are not uncommon in Pakistan, though.

 

Reporter Waqas Azeem