Not surprisingly, the state bank had to raise interest rates at that time. But the fact that he had to do it in an emergency session and then raise it by 250 basis points to 12.25% was by no means intended. It seems that everything from the collapse of the rupee to stubborn inflation to the rapid depletion of reserves, while the IMF program is suspended, has forced the central bank to abandon its habit of supporting the narrative of the government and take a super warmongering position. And it is clear that the inflationary pressures are not only exogenous, although supply bottlenecks and the Russian-Ukrainian war do cast a long dark shadow, but also because there was no government in recent days to control the price manipulation typical of the Ramzan cycle.

This is negative for the market as well as for investors. It reverses the government’s efforts, before the constitutional crisis unleashed last Sunday, to incorporate expansionary fiscal policy to gain political points at a crucial time. The PTI will therefore have to face the political fallout of this decision and also answer for the economic damage it has caused. But the first task when the no-confidence formalities are completed, regardless of the government in power after it, must be to stabilize the economy.

Unfortunately, there won’t be much room for expansion, especially if the IMF program is to be reinstated. The PTI government has put the brakes on the work in recent days by violating structural adjustment agreements, which led to the suspension of the program, but restarting it now will require a lot of sacrifice in terms of further reductions in subsidies and tax increase. This is a baggage that no new administration would want to start with. But there is no other option. Pakistan’s valuations are currently giving default level SOS signals in the international market, and the country will have to squirm well to avoid the axe. SBP becoming so strongly hawkish is part of the wriggling. *

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