The State Bank of Pakistan (SBP) looks set to hike its key policy rate in its review today (Monday), as it tries to tackle rising inflation that could reach 24.5 percent in December 2022. had gone
Pakistan is grappling with an economic downturn, dwindling reserves and a weakening currency, prompting the central bank to prepare to raise benchmark interest rates at its first monetary policy committee meeting in calendar year 2023. , but what a great addition. It will remain a tough question until an official announcement is made by State Bank Governor Jameel Ahmed.
The central bank in November last year raised the benchmark interest rate by 100 basis points (bps) to 16% – the highest since 1999 – after September 2021 to combat rising inflation. , taking the total increase to 900 bps.
A survey conducted by Topline Research suggests that the market expects a 100-200bps hike in interest rates. A majority of participants (74%) expect a 100-200bps increase, of which 37% believe 100bps, 18% see 150bps and 19% see it at 200bps.
Of the remaining participants, 2% expect a hike of more than 200bps, 5% expect a 50bps hike while 18% expect no change and only 2% expect a rate cut.
On the external front, challenges continue to mount as the SBP’s foreign exchange reserves fell to $4.56 billion due to heavy loan repayments and dwindling fund inflows.
“We believe the policy rate will rise by 100bps but further rate hikes cannot be ruled out if inflation does not ease and external issues persist,” Topline Research said.
Since the last monetary policy statement on November 25, 2022, urban core inflation (non-food and non-energy) stood at 14.7 percent in December 2022 as against 14.6 percent in November.
Meanwhile, rural core inflation rose to 19 percent last month from 18.5 percent in November. A rise in core inflation will also be a major concern for the central bank.
Pakistan has sought to convince the International Monetary Fund (IMF) to complete the ninth review – pending since September 2022 – of its long-awaited bailout package and as the country based in Washington Agreed to some tough economic policy adjustments to attract lenders. The decision of State Bank is being closely monitored.
