Karachi: Analysts said Thursday that the State Bank of Pakistan (SBP) will likely raise its key policy rate again on Monday (July 31) to control inflation in accordance with IMF criteria.
A week after approving Pakistan’s fresh bailout, the IMF advised it to continue monetary tightening.
Nine analysts projected the central bank will raise the main rate by 100 bps to 23% at its policy meeting. While one forecast a 50 bps hike and six predicted no change.
Since April 2022, the SBP has hiked its key policy rate 12.25 percentage points to control rising inflation.
In June, the state bank maintained rates since inflation peaked at 38% in May. In an emergency meeting to secure IMF financing, it raised rates by 100 bps before the end of the month. Citing a “slightly deteriorated inflation outlook”.
Pakistan announced in the Memorandum of Economic and Financial Policies (MEFP) that followed from its IMF talks that it will take further action at the next monetary policy committee meeting and subsequent ones until inflation and inflation expectations are clearly down.
The SBP stated today that the MPC will meet on Monday to set key policy rates.
Sami Tariq, head of research at Pak-Qatar, predicted the central bank would boost rates by 100 bps to prevent inflation from rising gas and power prices.
IMF’s satisfaction
Most analysts expect the rate hike to satisfy IMF requirements.
However, Capital Economics economist Shivaan Tandon stated that Pakistan may be through the worst now that inflation has crested and the IMF funding is secured.
He noted that pricing pressures in the economy are still significant and authorities should avoid high inflation.
“We think the SBP will aim to suppress domestic demand through further monetary tightening to keep a lid on imports. As well as contain the current account deficit and mitigate downward pressure on the currency,” Tandon said.
However, economists who projected no rate move argued pricing pressures had not changed enough since the last policy meeting to warrant a hike this month.
Topline CEO Mohammad Sohail said the consumer price index, sensitive pricing index, and current account are improving.
