The State Bank of Pakistan on Thursday raised the policy rate by 300 basis points, exceeding market forecast.
The policy rate was hiked to 20% to tame surging inflation, the highest since October 1996.
The market estimate was a 200-basis-point rise.
"This (rate hike) will help anchor inflation expectations and steer inflation to the medium-term target of 5-7% by the end of fiscal year 2025," read a statement by the central bank.
Pakistan's annual consumer inflation rate rose to a nearly 50-year high of 31.5% in February.
The bank said the near-term inflation outlook worsened due to the recent fiscal adjustments and exchange rate, therefore, revising inflation expectations upward.
The average inflation this year is now expected to range between 27%-29%, up from the November 2022 projection of 21%-23%.
In its last policy meeting in January, the bank increased the policy rate by 100 basis points to 17%.
