In an attempt to offset escalating inflation, the State Bank of Pakistan has raised its benchmark interest rate to 16 per cent, the highest in the nation’s history since 1999: a grim sign of the challenging fiscal year that lies ahead. With an account deficit of $12.09 billion and inflation in the double digits, Pakistan is treading on a path that would lead to a very (almost unimaginable) dangerous territory. However, it is unclear whether the State Bank’s measures will do much to reverse this pattern. A mere 21 per cent of people in Pakistan have access to bank accounts. Our financial inclusion rate lags horribly behind regional competitors like India and is shamefully low compared to markets in the West. A lack of confidence in the banking system has prevented households from depositing their assets in banks. Most people prefer to handle their money in more informal ways, meaning that they are not affected by the current state of affairs. Financial inclusion is the cornerstone of any strong economy, boosting inclusive growth and enhancing financial stability-higher rates of financial inclusion mean that businesses and individuals can engage with the economy more actively. When economies with high financial inclusion rates increase interest rates, it increases the level of risk-free reserves in the financial system, restricting the money supply available for purchases of riskier assets. Rising interest rates discourage consumer and business spending at a time when prices are exorbitantly high, incentivizing them to save their money and ultimately decreasing inflation. This strategy has worked wonders for European markets and the United States but is unlikely to help a country like Pakistan whose growth model is largely reliant on foreign capital inflows. After Russia invaded Ukraine, the cost of external borrowing increased exponentially, exerting even more pressure on the banking sector, which has helped the government meet its financing needs many times before. In contrast to the liberalized financial system of the West, Pakistan has always pursued a tight monetary policy with strong regulatory oversight, which has helped the country at times but has also stifled economic growth and even discouraged financial inclusion. It is unlikely that the increase in interest rates will do much to help inflation, which has more to do with our balance of payments crisis and a depreciating currency. *