(May 23): Pakistan raised borrowing costs more than estimated to damp demand, as policy makers try to win a bailout from the International Monetary Fund without meeting the politically tough condition of increasing fuel prices.

State Bank of Pakistan lifted the target rate by 150 basis points to 13.75% on Monday, steeper than the 100 basis point median estimate in a Bloomberg survey. The monetary policy committee’s outlook assumes engagement with the IMF, as well as reversal of fuel and electricity subsidies in the year starting July 1, the central bank said in a statement.

“Under these assumptions, headline inflation is likely to increase temporarily and may remain elevated throughout the next fiscal year,” it said.

High global commodity prices and rising imports have stoked Asia’s second fastest inflation. Consumer prices rose over 13% in April and the rupee plunged past 200 a dollar last week for the first time ever amid a dollar shortage. Pakistan’s foreign exchange reserves of US$10.2 billion cover less than two months of imports.

Policy makers are in talks with the IMF over conditions for accessing the US$3 billion payout pending from a loan programme. Finance Minister Miftah Ismail on Monday said Pakistan may have to raise interest rates to battle soaring inflation but cannot afford to raise fuel costs.

“I will sign the agreement with the IMF in next two days and won’t come back without doing it,” Ismail told reporters in Karachi. Talks between Pakistan and the IMF started last week in Doha.

Pakistan’s current-account deficit will narrow to about 3% of GDP after the government imposed import curbs, the central bank said.

“This narrowing of the current account deficit together with continued IMF support will ensure that Pakistan’s external financing needs during the next financial year are more than fully met, with an almost equal share coming from rollovers by bilateral official creditors, new lending from multilateral creditors, and a combination of bond issuances, FDI and portfolio inflows,” it added.

Pakistan’s financial woes intertwine with political ones. Former Prime Minister Imran Khan, who was recently ousted from office, called on supporters to hold a sit-in starting May 25 in Islamabad, the nation’s capital. For weeks, opposition politicians have been at loggerheads with Khan, who has pushed for early elections in a bid to recapture power.

Before Monday’s action, Pakistan had raised borrowing cost by 525 basis points from its pandemic-era low.