Pakistan central bank head pledges stability

Bloomberg

Pakistan’s top central banker pledged policy actions “on a timely basis” to ensure stability amid a political shakeup and deteriorating economy.
The comments from State Bank of Pakistan Governor Reza Baqir come as lawmakers choose Shehbaz Sharif as prime minister after Imran Khan was ousted in a no-confidence vote. Khan’s downfall was accelerated by inflation running faster than 12%, the rupee trading near a record low to the dollar and foreign reserves shrinking to levels only able to cover a couple of months of imports.
“I have a broader message to the investor community, and that is that such political processes are not uncommon in democracies,” Baqir said in a Bloomberg Television interview. “It is important that economic policy making institutions act on a timely basis to ensure that the goal of financial stability remains.”
Baqir pointed to the central bank’s surprise decision to raise interest rates by 250 basis points following an emergency meeting, pegging the key rate at 12.25%. That returns the real rate — nominal rate adjusted for inflation — to near positive territory.
The central bank sees the economy expanding around 4% this fiscal year despite the hike in interest rate, Baqir said.
A stable government is key to securing a crucial $3 billion remaining from a loan from the International Monetary Fund. That deal had been threatened by Khan’s decision earlier this year to cut fuel and electricity prices, a step to ease public angst as inflation pressures mounted but counter to the lender’s
requirements.
Baqir acknowledged that IMF-required steps such as raising energy prices are difficult and unpopular, and could slow the release of funds, but that it is a common challenge for any country undergoing a political “situation.”
“We are quite confident that quite soon we will be able to put the delay behind us and soon announce the good news of completing the next tranche from the IMF,” he said in the interview with Yvonne Man and Haslinda Amin. “The IMF is important not just for the money, but also for the signal that it sends of good housekeeping on the economic policy front that catalyses funding from other bilateral creditors as well as private capital markets.”