State Bank of Pakistan raised policy rate by 250bps to 12.25%

Pakistan's central bank raised its policy rate by 250 basis points to 12.25% in an emergency meeting on Thursday, the bank said in a statement, the biggest hike in years.

The State Bank of Pakistan (SBP) cited a deterioration in the outlook for inflation and an increase in risks to external stability, heightened by the Russia-Ukraine conflict, as well as domestic political uncertainty.

The hike was unscheduled as the next monetary policy committee (MPC) meeting was set for late April, but the bank had warned last month that it could meet earlier than expected to safeguard external and price stability.

“Heightened domestic political uncertainty” contributed to a 5% depreciation in the rupee, triggered a surge in local bond yields as well as Pakistan’s Eurobond yields and CDS spreads, the central bank said.