KARACHI: The State Bank of Pakistan (SBP) is expected to hike interest rates further in next month’s policy review to tackle rising inflation, The News reported on Sunday, citing a brokerage firm.
Arif Habib Limited (AHL) said in a note, “The Monetary Policy Committee is scheduled to start its next meeting on April 4 and we expect the SBP to raise its policy rate by 100 bps (basis points) to 21 in this meeting. % will make.” .
The company conducted a poll to find out what the market expects from the upcoming monetary policy, taking opinions from various sectors.
According to the survey poll results, 57.7% of the total respondents believe that the SBP will increase the policy rate, of which: 30.8% expect a rate hike of 100bps, 26.9% a rate hike of 200bps. Expecting. 42.3% of the total respondents believe that the policy rate will remain at 20%.
The policy rate was hiked by 300bps to 20% this month. According to the Monetary Policy Committee, this decision was taken in view of the risks of inflation. Due to external and fiscal adjustments, the risks identified in the previous policy meetings have materialized and partially reflected in the Consumer Price Index (CPI) numbers. Additionally, the MPC has also revised down its CPI forecast for the year to 27-29% from the earlier forecast of 21-23%.
“Inflation is likely to remain elevated in the coming months as the effects of external and fiscal adjustments (including additional taxes, tariff hikes, currency weakness and the ‘Ramadan factor’) play out,” AHL said.
“Average inflation for 8MFY23 reached 26.2% compared to 10.5% in the same period last year. It added that core inflation continued to rise every month as inflationary pressures intensified and widened, which Reflects the effects of a weakening PKR amid ongoing debt repayments and lower fiscal volumes.
Since the last monetary policy announcement in March, the rupee has lost 1.2 percent of its value against the dollar. These external account challenges persisted despite a significant contraction in the current account deficit, which was recorded at $242 million in January (lowest since March 2021) mainly due to lower imports, which the authorities 38 percent lower annually with measures taken to curb imports. Decline in international commodity prices
It said that “Apart from controlling inflationary pressures, the decision to hike the policy rate will also facilitate the long-awaited ninth review with the IMF, to secure a USD 1.2bn tranche for Pakistan.” And is critical to unlocking further inflows from other international lenders.” .
The market’s reaction to rising inflation is reflected in the recent rise in bond market rates, driven by investors’ bullish outlook.
In the latest March 8, 2023 Market Treasury Bills (T-Bill) auction, the cut-off yields of three-month, six-month and 12-month tenors increased by 105bps, 95bps and 120bps as compared to the previous auction. With data available since June 1998, output in all three periods is at an all-time high.
Moreover, if we look at the shape of the yield curve to increase the markets expectations for monetary policy, we see that the secondary market yield has also increased by 20.93% since the last monetary policy in March 2023. According to AHL, it can be safely assumed that the market also expects the SBP to hike the policy rate in the upcoming policy.
