A majority of market participants expect a major hike in the policy rate in the upcoming Monetary Policy Committee (MPC) meeting of the State Bank of Pakistan (SBP) scheduled for May 23, according to a poll conducted by brokerage house Arif Habib Limited (AHL).

The brokerage house, which itself expects the SBP to increase the policy rate by 100bps to 13.25%, conducted a poll in which it took feedback from various sectors - both financial and non-financial - on expectations over the Monetary Policy Statement (MPS).

Around 85% of respondents were of the view that the SBP will increase the policy rate in May 2022’s MPS while 15% expects interest rate to be held at the current rate of 12.25%.

Of the respondents expecting a hike, a majority (54%) are anticipating a rate hike of 100 bps, 15% expect a rate hike of 150 bps and 8% expect a rate hike of 50 bps. 4% anticipate a rate hike of 250 bps and 200 bps each.

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AHL said the MPC meeting comes as the country battles high inflation, which has remained in the double digits since November last year, mainly on the back of an uptick in food and energy prices and the expected revival of the International Monetary Fund (IMF) programme, which would compel the government to roll back fiscal relief measures in order to get the fund's seventh review through.

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“This step of the government is most likely to further augment inflationary pressure hence SBP might want to act proactively and consider rate hike in the upcoming policy,” said AHL.

Last month, at an emergency meeting, the MPC decided to raise the policy rate by 250 basis points to 12.25% in a bid to tackle inflation and a widening current account deficit led by a high import bill. The comittee said at the time that the outlook for inflation has deteriorated and risks to external stability have risen.

“Externally, futures markets suggest that global commodity prices, including oil, are likely to remain elevated for longer... On the domestic front, the inflation out-turn in March surprised on the upside, with core inflation in both urban and rural areas also rising significantly,” MPC had said in a statement then.