Another brokerage house expects 200bps hike in key policy rate

The State Bank of Pakistan (SBP) could increase the key policy rate by 200 basis points (bps) in its upcoming Monetary Policy Committee (MPC) meeting on September 14, said a brokerage house.

Topline Securities, in its report released on Friday, said it expects the SBP to raise the key policy rate by 200bps to 24%. The key policy rate already stands at a record high of 22%.

“We expect an increase of 200bps, taking the rate to 24% in the upcoming MPC meeting,” said Topline.

It said that since the last MPC, major developments have taken place.

“These include: (1) Pakistan posted a current account deficit of $809 million in July 2023 after four consecutive months of surplus, (2) local fuel (petrol & diesel) prices have increased by around 19%, (3) international oil prices in US$ have risen by 6%, and (4) rupee has fallen by 6% against the US dollar,” it said, adding that the factors are likely to be considered by in the upcoming MPC.

As per the survey conducted by Topline, 54% of participants expect interest rates to increase by 200bps, while 18% of participants see an increase of up to 100bps in the policy rate.

Moreover, 12% see interest rates increase by 150bps, and 10% expect a 300bps increase, while the remaining foresee no change.

“We also believe that the SBP may revise their inflation targets upward from the previous range of 20-22% for FY24,” said Topline.

Responding to a query on PKR/USD parity outlook in the inter-bank market by Jun-2024, Topline shared that 38% of the participants anticipate PKR/USD parity to range in Rs320-340 by June 2024.

Around 25% expect it to be around Rs340-360 while 21% expect it to be around Rs300-320. On other hand, 12% expect it to be below Rs300, while 5% expect it to be above Rs360.

“We also expect PKR/USD in interbank market to be in range of Rs320-340 by Jun-2024,” said Topline.