It is expected by the financial market that the interest rate will be increased by 100 to 150 basis points, which could be announced by the State Bank of Pakistan (SBP) in the next scheduled monetary policy.
On Tuesday, the central bank announced that its Monetary Policy Committee (MPC) meeting will be held on Thursday. The policy statement for the next two months will be unveiled by Acting Governor SBP Dr Murtaza Syed at a press conference.
According to analysts and researchers, the prevailing trend of inflation will cause interest rates to rise sharply soon. Last month, inflation saw a sudden increase of over 21 per cent.
Samiullah Tariq, Head of Research at Pak Kuwait Development and Investment Company, stated that he believes the next monetary policy will see interest rates increase by 100 to 150 basis points. This is due to the expectation that inflation for the next fiscal year will be around 18 to 19 percent.
The current policy interest rate is 13.75 percent, while the inflation rate for the upcoming fiscal year is projected to be 12.2 percent. This would still result in a positive real interest rate.
However, if inflation rates remain in the 18 to 19 percent range, the interest rate could eventually fall below the inflation rate, resulting in a negative real interest rate.
Finance experts believe that the current interest rates are too high and that they will severely harm economic growth. The higher interest rates mean that there is a higher risk of default, which in turn compels banks to either minimize financing or ask for an even higher interest rate to cover the risk.
Finance Minister Miftah Ismail has already said that the new fiscal year will face much higher inflation due to higher oil prices and a super cycle of commodity prices.
As per the Topline Securities survey, 80 percent of the participants expect an increase in the policy rate in the upcoming monetary policy.
Around 45 percent of the participants expect the policy rate to increase by 100 basis points; 30 percent anticipate an increase of 150 basis points, and 5 percent expect an increase of more than 150 basis points.
In terms of inflation expectations, 52 percent of participants anticipate inflation of more than 17 percent in FY23. 11 percent of those polled expect it to be between 16 and 17 percent, while the rest expect it to be less than 17 percent.
According to a research report, the recent increase in policy rates by the SBP is in line with expectations, and the SBP will likely continue to raise rates in the future in response to inflation and external account concerns.
CPI inflation in June 2022 was 21% higher than the previous year, exceeding market expectations.
This was due to higher than expected inflation recorded by the transport and food segments of CPI, which clocked in at 62pc year-on-year (YoY) and 26pc YoY, respectively.
