IMF asking Pakistan to raise the interest rates

5th May 2015

 
 

The International Monetary Fund (IMF), in its third review with Pakistan, has recommended 1% interest rate hike in the upcoming monetary policy revision. Based on Pakistan’s latest inflation figures, where the CPI has increased to 9.1% for the month of March, the IMF is urging the Finance Ministry to revise the discount rate upwards by at least 100 basis points.

As the third round of discussions between IMF and Pakistan commence, the public announcement by IMF’s Pakistan Office on interest rates will create a pressure of compliance on the Pakistani government. The central bank has managed to maintain its discount rate at 10% since the last two revisions; it had also assured industrialists of potential rate cuts to reduce the cost of borrowing in the economy. However, the IMF seems to have a different approach; they would be pushing for a 100 basis point increase in the forthcoming round of discussions.

For consumers, the interest rate hike would effectively increase their earnings on savings and fixed deposits. Pakistan’s minimum deposit rate, presently linked with the economy’s discount rate, will also witness a 1% surge if the government complies with the IMF. However, KIBOR-linked lending, such as car loans, home loans and business loans to the private sector will prove to be more costly with the upward revision.

 

 
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