MPC meeting: SBP likely to raise key policy rate by 200 basis points

KARACHI: The State Bank of Pakistan (SBP) looks likely to raise its key interest rate by 200 basis points to 22% at its review on April 4, as it struggles to tame inflation, the median estimate in a Reuters poll showed.

Eighteen out of 20 economists and market watchers surveyed said the central bank would hike rates, with 12 of them predicting a 200 bps increase.

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

Two poll participants saw the benchmark raised by 100 bps, while four forecast a 150 bps hike. Two respondents expected rates to remain unchanged.

Worldwide growth in consumer prices has compounded high inflation in Pakistan caused by a weakening currency, energy tariff increases and elevated food prices due to Ramadan.

The latest consumer price-based inflation clocked in at 31.5% in February, the highest in nearly 50 years.

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Food, beverage, and transportation prices have all surged more than 45% and the country remains in talks with the International Monetary Fund (IMF) to unlock its next tranche of around $1.1 billion.

On March 2, the SBP raised its key rate by 300 basis points to 20%, exceeding market expectations.

SBP raises key interest rate by 300bps, takes it to 20%

“The CPI is expected to be 34-36% due to hike in food prices in Ramadan. The weekly sensitive price index is also at an all time high of 47%,” said Saad Habib, head of equities at Al Habib Capital Markets, a brokerage firm in Karachi.

The SBP has raised rates by a total 10.25% since January 2022.

Shivaan Tandon, an economist at Capital Economics, expects inflation to rise further in coming months as a weaker currency, higher taxes and shortages of key goods continue to exert upward pressure on prices.

Feb CPI jumps 31.5pc, highest rate in nearly 50 years

“Policymakers will also be keen to impress the IMF, by displaying their commitment to towards containing inflation, to secure a much-needed funding to mitigate the risk of default,” he added.

Some economists, however, felt with the last hike delivered just about a month ago, the central bank may prefer to wait to see the impact of the rate hikes on the economy before tightening further.

Earlier in March, brokerage house Arif Habib Limited (AHL), in a report titled ‘Pakistan Economy: Rate hike is still likely’, said it expects the SBP to raise its policy rate by 100bps to 21% on April 4.

In its results, it found that 57.7% of the total respondents were of the view that the SBP will increase the policy rate, of which: 30.8% were expecting a rate hike of 100bps, while 26.9% were foreseeing a rate hike of 200 bps. Over 42% of the total respondents were of the view that policy rate will remain unchanged at 20%.

SBP says MPC to be announced through press release

Meanwhile, the central bank said it will issue the Monetary Policy Statement through a press release on April 4.