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

  • Brokerage house AHL says it expects an increase of 100bps in upcoming meeting on April 4
Published March 18, 2023
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A brokerage house believes the State Bank of Pakistan (SBP) is expected to jack up the key policy rate in its upcoming Monetary Policy Committee (MPC) meeting scheduled on April 4, as the country battles high inflation and remains in talks with the International Monetary Fund (IMF) for revival of its bailout package.

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

“Besides controlling inflationary pressure, the decision to raise the policy rate will also facilitate the long-awaited ninth review with the IMF, which is crucial for Pakistan to receive tranche of USD 1.2bn and unlock further inflows from other international creditors,” it said.

Friendly delay ‘last hurdle’ to IMF bailout

AHL was of the view that inflation in the upcoming months is likely to remain elevated as the “impact of external and fiscal adjustments, including additional taxation, tariff hikes, weakening of currency and ‘Ramadan factor’, unfolds”.

Earlier this month, the MPC of the central bank increased the key policy rate by 300 basis points (bps) to 20%, its highest level since October 1996, with a view to taming inflation.

The MPC back then said that decision will help anchor inflation expectations and steer inflation to the medium-term target of 5-7% by end-FY25. Moreover, the MPC also revised its Consumer Price Index (CPI) forecast for the year to 27- 29% against an earlier forecast of 21-23%.

Pakistan remains engulfed in high inflation, with the CPI-based reading increasing to 31.5% on a year-on-year basis in February 2023, data released by the Pakistan Bureau of Statistics (PBS) stated.

Meanwhile, AHL said that core inflation continues to creep higher each month “as inflationary pressures rise and broaden, reflecting the spillover effects of the PKR weakening amid ongoing debt repayments and lower financial inflows”.

Poll results

AHL said it conducted a survey in order to find out what the market is expecting in the upcoming monetary policy.

Its respondents included banks, asset management companies, insurance, and development financial institutions as well as representatives from non-financial services/manufacturing sectors.

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


1000 characters
Waqar rasheed alvi Mar 18, 2023 08:46pm
Okay 20% Confirmed final.
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Faisal Mar 18, 2023 11:03pm
Let's not fool ourselves T bills yields already leaping to 21% ...expect 23% to 25% in time to come coz Pkr losing value , fuel rate hikes , short supply in major crops, imported products release from ports whith higher landed costs will all add to CPI. Additionally govt already mentioning borrowing a few trillions from money mkts to fund the budget . And we all know revenue collection always falls short of expectations.
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