Pakistan's 2021-2023 tightening cycle
Pakistan's central bank lifted rates from roughly 7% to 22% by June 2023 as inflation spiraled to a peak near 38% in May 2023 — the worst in decades. The bank was defending the currency and stabilizing the economy under an IMF rescue program amid a balance-of-payments crisis.
Rates stayed at 22% for more than a year, and inflation fell sharply through 2024-2025 as the bank began cutting.
The episode showed how far Pakistani rate policy stretches in a crisis and how severely imported inflation hits an economy dependent on energy imports.
Sets the reference point for Pakistani rate policy: today's 12% is modest by comparison, and the current hike stems from a far milder inflation shock. It also shows the pattern of external shocks transmitting through energy and food prices.
