MPC meeting on March 2: market expects 200bps hike in key policy rate

In a widely expected move, the State Bank of Pakistan (SBP) on Tuesday morning announced that its Monetary Policy Committee (MPC) meeting has been preponed and is now scheduled for Thursday, March 2.

Market participants expect a 200-basis-point increase in the central bank’s policy rate, which currently stands at 17%.

Talking to Business Recorder, Saad Khan, Head of Research at IGI Securities, said the policy rate is expected to hit 19%.

The market analyst was of the view that the emergency MPC comes as policymakers remain at loggerheads to control rising inflation, which already hit a nearly 48-year high at 27.6% in January.

“The inflation rate is projected to go over 30% in February, and is expected to remain above 30% in the coming months as well, due to the Ramazan factor, and rise in petroleum prices,” he said.

“As the current account deficit remains at a manageable range, the central bank’s prime focus is on anchoring inflation to the maximum,” added Khan.

Meanwhile, Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, also expected the key policy rate to inch up to 19% after a 200bps hike. However, the expert believes that the decision has more to do with appeasing the International Monetary Fund (IMF) as the next MPC was only days away.

“It is more of an IMF-dictated decision,” said Rauf.

He said that the central bank in its previous MPC statement already projected inflation rate to hike due to a rise in energy tariffs and the imposition of taxes.

“Increasing the interest rate seems counterproductive at the moment, as the government cost of borrowing would rise. However, it could be positive if the IMF programme is resumed, which will be beneficial for the economy,” said Rauf.

The cash-strapped country is undertaking key measures to secure an over $1 billion loan from the International Monetary Fund (IMF), including raising taxes, and removing blanket subsidies and artificial curbs on the exchange rate.

An emergency meeting outside of the SBP-issued advance calendar happened last year in April in which the MPC decided to raise the policy rate by 250 basis points.

In the last meeting held on January 23, 2023, the committee increased the policy rate by 100 basis points to 17%.