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Further hike in policy rate on the cards as inflation runs deep in Pakistan

by Irsa
in Main
Reading Time: 2 mins read
Further hike in policy rate on the cards as inflation runs deep in Pakistan
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State Bank of Pakistan (SBP) is expected to jack up the key policy rate in its upcoming Monetary Policy Committee (MPC) meeting scheduled on April 4, as the country battles high inflation and remains in talks with the International Monetary Fund (IMF) for the revival of its bailout package.

In a report  “Pakistan Economy: Rate hike is still expected,” released on Friday, Arif Habib Limited (AHL) expected that the SBP will increase its policy rate by 100 basis points to 21% on April 4.

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The IMF’s long-awaited ninth review, which is necessary for Pakistan to receive a tranche of USD 1.2 billion and open up additional inflows from other foreign creditors, will be made easier thanks to the decision to boost the policy rate, it added.

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AHL was of the view that inflation in the upcoming months is anticipated to stay elevated as the “effect of external and fiscal changes, including additional taxation, tariff hikes, weakening of the currency and ‘Ramadan factor’, unfolds”.

In an effort to control inflation, the central bank’s MPC raised the key policy rate by 300 basis points (bps) earlier this month, bringing it to 20%, its highest level since October 1996.

Such a decision, according to the MPC at the time, will assist in stabilizing inflation expectations and guide inflation towards its medium-term target of 5-7% by the end of FY25. In addition, the MPC updated its prediction for the Consumer Price Index (CPI) for the year from 21-23

According to figures issued by the Pakistan Bureau of Statistics (PBS), Pakistan continues to experience high inflation, with the CPI-based reading rising to 31.5% on a year-over-year basis in February 2023.

Nevertheless, AHL added that core inflation continues to crawl higher each month “as inflationary pressures intensify and broaden, reflecting the spillover effects of the PKR depreciation amid continued debt repayments and decreased financial inflows”.

Tags: IMFlatestMPCState Bank of Pakistan
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