‘SBP likely to raise rates again’

Pakistan’s central bank will likely raise its key interest rate again on Monday to tackle persistently high inflation, giving in to pressure from the IMF, analysts said.

Pakistan must continue its monetary tightening cycle, the IMF said in a staff report earlier in July, a week after the lender approved a new bailout arrangement which helped it avert a debt default.

Nine out of 16 analysts predicted the State Bank of Pakistan (SBP) will raise the key rate by 100 basis points (bps) to 23% at its policy meeting next week, while one saw a smaller 50 bps increase and six expected no change.

In the Memorandum of Economic and Financial Policies (MEFP) that resulted from its talks with the IMF, Pakistan said it stands ready to consider further action at the next monetary policy committee meeting and subsequent one until inflation and inflation expectations are on a downward path.

Sami Tariq, head of research at Pak-Qatar, said as a preemptive measure to control inflation arising out from increase in administered utility prices of gas and electricity, the central bank would raise rates by 100 bps.

Most analysts believe the rate increase would be done largely to satisfy the IMF’s criteria.

“We think the SBP will aim to suppress domestic demand through further monetary tightening to keep a lid on imports, contain the current account deficit and mitigate downward pressure on the currency,” said Shivaan Tandon, an economist at Capital Economics.

However, the analysts who predicted no change in rates said there was no major change in price pressures since the last policy meeting to warrant a hike this month.

Published in The Express Tribune, July 28^th, 2023.

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