The State Bank of Pakistan (SBP) on Friday raised its benchmark interest rate by 150 basis points to 8.75 per cent as it grapples with surging inflation and uncertainty over the stalled International Monetary Fund (IMF) loan facility.

“The MPC (Monetary Policy Committee) was of the view that there is now a need to proceed faster to normalise monetary policy to counter inflationary pressures and preserve stability with growth,” the SBP said in a statement.

It added: "Looking ahead, the MPC reiterated that the end goal of mildly positive real interest rates remains unchanged, and given today’s move, expects to take measured steps to that end."

Many analysts had been expecting the central bank to lift rates, but the size of the hike was beyond most expectations.

The SBP further noted that inflationary pressures had increased considerably since the last MPC meeting, with headline inflation rising from 8.4pc year-on-year in August to 9pc in September and further to 9.2pc in October. It said this increase was mainly driven by higher energy costs and a rise in core inflation.

Hence "looking ahead, global commodity prices and potential further upward adjustments in administered prices of energy pose upside risks to the average inflation forecast of 7-9pc in FY22," it said.

The SBP's warning comes as high inflation continues to hit the country's sizeable poor and middle classes as prices for essentials such as food and fuel climb ahead of the cooler winter months.

With regards to the fall of the rupee, the SBP said the currency had depreciated by 3.4pc since the last MPC meeting in September.

"The US dollar also appreciated against most emerging market currencies since May as expectations of tapering by the federal reserve have been brought forward," it noted. "However, the fall in the value of the rupee since May has been comparatively large. As other adjustment tools normalise, including interest rates and fiscal policy, pressures on the rupee should abate."

Moreover, "persistently high" international commodity prices and strong domestic activity kept the current account deficit elevated at $3.4 billion in the first quarter of FY22, the SBP said.

"The deficit widened to $1.66bn in October from $1.13bn in September due to high energy prices and an uptick in services imports, despite some moderation in non-energy imports. There was also a moderate month-on-month decline in exports and remittances."

According to the SBP, the current account deficit for FY22 is expected to modestly exceed the previous forecast of 2-3pc of the GDP.

The SBP has been grappling with the falling rupee, high inflation and a current account deficit, while investors have become nervous over the outcome of talks between the government and the IMF, which has delayed the release of the next tranche of a $6 billion loan facility.

Last week, the central bank announced that it was lifting the cash reserve requirement for banks by one percentage point, the first such move in more than a decade, in another effort to deal with accelerating inflation.

The SBP had also flagged on Wednesday that “recent unforeseen developments” affecting the outlook for inflation and balance of payments, as well as uncertainty, had prompted it to call its policy meeting a week earlier than scheduled.

In a press release, the central bank had said the MPC meeting would now be held on Friday (today) instead of the previously announced date of November 26.

The SBP had last lifted interest rates by 25 basis points in September after more than a year on hold.

Earlier this week, the SBP also announced that it would increase the number of monetary policy decisions each year to eight from six, with the next set to take place on December 14.