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Analysts expect rate hike of up to 300bps in SBP’s monetary policy announcement

  • High inflation and currency depreciation seen as reasons behind expected increase in key policy rate
Published August 31, 2023
Design: Hussain Afzal
Design: Hussain Afzal

The market is expecting a rate hike as high as 300 basis points when the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) meets next to decide the key policy rate.

Analysts Business Recorder reached out to on Thursday said the central bank is expected to hike the rate, which currently sits at a record high of 22%, but its the quantum that would garner interest on the day.

Currently, the SBP is scheduled to hold its MPC meeting on September 14, according to an advance calendar it issued in July. However, the central bank has taken the liberty to announce changes in its key policy rate by holding ‘emergency’ meetings like it did in June previously.

Market talk suggests the SBP would likely wait it out this time and an emergency meeting is unlikely.

Here is what five analysts Business Recorder spoke to expect in the announcement.

Amreen Soorani, Head of Research at JS Global, projected a hike of 100 bps in the policy rate.

“Higher inflationary readings is the reason for it,” said Soorani, referring to inflation that currently stands at around 28-29%.

Tahir Abbas, Head of Research at Arif Habib Limited (AHL), expected a hike of 100-150bps.

“The inflation rate is expected to remain higher in August as well as in the coming months,” said Abbas. “Moreover, the ongoing currency depreciation may also compel the SBP to push the interest rate upwards.”

“We expect a policy rate hike of around 100-150 bps.”

Earlier, AHL in a report had said headline inflation is expected to move up in August, higher than the 28.3% recorded in July.

Surprisingly, Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, opted to go against the wider consensus.

“We do not expect a major hike,” he said. “The central bank may hike the key policy rate by 100 bps to signal that there are challenges pertaining to inflation.

“The latest inflation reading, which would be released tomorrow (Friday), will be an important factor for the policy rate decision,” he said.

Shahab Farooq, Head of Research at Next Capital, expected an increase of 200bps.

“Forward-looking real interest rates are still negative, whereas September inflation reading is expected to exceed 30%,” Farooq said.

Similar sentiments were expressed by another market player who preferred staying anonymous and said a hike of 200-300bps increase is on the cards.

“The reasons are a continuously weakening PKR and high inflation,” he said.

The expert, however, warned that a high interest rate is not a solution to Pakistan’s economic woes.

“It is more of a fiscal issue. A hike in interest rate will not solve anything, and neither would higher taxes in a slow macroeconomic environment. The government should ideally try to reduce its expenses and balance its books.”


Back in June 26, the MPC of the SBP raised the key policy rate by 100 basis points (bps) to 22%, after convening an emergency meeting, to keep real interest rate firmly in the positive territory on a forward-looking basis.

Back then, it said “certain upward revisions in taxes, duties and PDL rate in FY24 budget” and the SBP’s withdrawal of the general guidance for commercial banks on prioritisation of imports as having increased the “upside risks to the inflation outlook” for the rate-hike.

Following this, central bank decided to keep the policy rate unchanged at 22% in its last MPC held on July 31.

It is pertinent to mention that as part of the International Monetary Fund (IMF) agreement, the government has committed to the Washington-based lender that it stands ready to consider further action in upcoming MPC meetings, until inflation expectations are on a clear downward path.

However, despite securing a last-minute deal with the IMF, Pakistan remains engulfed with issues of high inflation, which clocked in at 28.3% on year-on-year basis in July 2023, and low foreign exchange reserves.


Comments are closed.

Amber Oct 19, 2023 11:11am
Keeping in view the current economic scenario, SBP key policy rate will remain steady at 22%.
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