20% Interest Rate in Pakistan - USD inflows & IMF's wishlist

20% Interest Rate in Pakistan - USD inflows & IMF's wishlist

Congratulations. We have hit a new low. As if a half a century high inflation wasn't enough that we've hit a 27 year high interest rate. A 12-15% Interest Rate is enough to zero the GDP growth per capita. Imagine the irreversible damage 20% would do.

Firstly, govt as biggest borrower will have to pay higher interest rate. In turn, the increased budget deficit will warrant even higher taxes from already burdened compliant tax paying salaried and middle class. It will create an inflationary spiral.

Corporates and individuals that have borrowed to do business are having a double whammy. Not only the financial costs are through the roof, goods can't be imported as LCs are blocked and buyers have virtually disappeared. Ready yourself for defaults, pay cuts and layoffs.

Tightening is done aiming to control forward inflation. There is no economic overheating nor globally high energy prices. If domestic currency depreciates by 50% in 12 months, 20% Interest Rate would not solve the problem.

Yes, it has killed imports for a while. SBP's trying to attract hot capital but credit risks are much higher. Nevertheless, we "need" IMF. Period. Whatever it takes to bring them onboard. Hopefully, this was last leg of hawkish trends. Dollars should be bought from the market. Fill your USD coffers. This is painful.