The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) will meet on Monday, (August 22) in Karachi, and issue the Monetary Policy Statement through a press release. While most analysts expect status quo in the key interest rate, some also anticipate a hike in view of rising inflation.

The Consumer Price Index (CPI)-based inflation hit 24.9% on a year-on-year (YoY) basis in July 2022, a 14-year high. Inflation in rural areas increased by 26.9% on year-on-year basis.

The weekly review of the sensitive price index (SPI) on Friday also showed a record increase in inflation up to 42.31% on a year-on-year basis in August, data shared by Pakistan Bureau of Statistics (PBS) showed.

Weekly SPI inflation shatters records, rises to 42.31pc YoY

At the same time, since the SBP's last MPC announcement on July 7, the rupee has seen a volatile ride but overall, depreciated a little over 3% against the US dollar, closing at 214.65 in the inter-bank market on Friday. The rupee's value is a key figure in determining domestic prices of commodities Pakistan imports.

However, some analysts argue that given tapering demand, expected improvement in current account deficit, discipline in the fiscal house, and currency adjustments, policy rate should be kept where it is.

Policy rate – keep it there

This will also be the first MPC announcement since the government appointed a new central bank chief.

Previous announcements

In calendar year 2022, the SBP has held its MPC meetings five times, raising rates on three of those occasions for a combined hike of 525 basis points.

On July 7, 2022, the SBP hiked the key interest rate by 125 basis points to 15% and said "in addition, as foreshadowed in the last monetary policy statement, the interest rates on EFS and LTFF loans are now being linked to the policy rate to strengthen monetary policy transmission, while continuing to incentivise exports by presently offering a discount of 500 basis points relative to the policy rate."

SBP increases key interest rate by 125 basis points, takes it to 15%

The MPS added that the combined action continues the monetary tightening underway since last September, which is "aimed at ensuring a soft landing of the economy amid an exceptionally challenging and uncertain global environment".

MPC under new governor

On Friday, the federal government appointed Jameel Ahmed, as the new governor of State Bank of Pakistan (SBP) for a period of five years.

Jameel Ahmed appointed governor of SBP

The position of the governor SBP was vacant on May 4, 2022 after the completion of three-year tenure of Dr Reza Baqir and as per SBP Act 1956, the senior-most deputy governor Dr Murtaza Syed assumed the charge of acting governor.

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