Pakistan's and Sri Lanka's rate hike moves are in focus as both the countries continue to be in an economic turmoil. Both the countries' borrowing cost are at a decade high even as elevated inflation and debt troubles linger.
Both the economies' monetary conditions are at their tightest in the decade. As per a Bloomberg survey, 34 out of 37 economists expected a hike ranging from 100-300 basis points for Pakistan. The Pakistan Central Bank has raised the rate by 100bps to 21%. Earlier in March, Pakistan raised its interest rate by 300 bps to 20%. The last time the interest rates touched 20% was in October 1996.
The Central Bank of Sri Lanka keeps the standing lending facility rate at 16.5% and maintains the interest rate at the current level. IMF's $3 billion loan might have given some relief to the drowing Lankan economy. However, the debt issues would make turning the economy to better a Herculean task. The IMF, while approving the loan has said that it would want to see headline inflation slow to the 4%-6% band by early 2025 and that the central bank must be ready to adjust its policy stance as needed.
Meanwhile, Pakistan is teetering on a debt default as the IMF bailout is in limbo. Pakistan has raised its taxes and energy prices and allowed the currency to depreciate to acquire the loan from IMF. Pakistan is waiting on IMF aid to avoid default. Pakistan's inflation quickened by a record last month, beating the median estimate and setting the stage for another big rate hike.