SBP expected to increase interest rates by 100bps

The State Bank of Pakistan (SBP) is anticipated to raise interest rates even more in the impending policy review next month to battle the rising inflation, according to a brokerage firm cited by local media reports on Sunday.

Arif Habib Limited (AHL) in a note predicted that the SBP would increase its policy rate by 100 bps (basis points) to 21% at the monetary policy committee’s upcoming meeting on April 4.

The company polled the market by gathering input from multiple industries to determine what the market anticipates from the next monetary policy.

According to survey results, 57.7% of all respondents believe the SBP will raise the policy rate, with 30.8% anticipating a rate rise of 100 bps and 26.9% anticipating a rate increase of 200 bps. In all, 42.3% of respondents believe that the policy rate will stay at 20%.

The policy rate was raised to 20% this month by a massive 300bps. The Monetary Policy Committee recommended the decision be made on the danger of inflation.

The risks that were mentioned in earlier policy meetings had manifested and were now partially visible in the consumer price index (CPI) figures as a result of external and fiscal adjustments. In addition, the MPC updated its projection for the CPI for the year from 21-23% to 27-29%.

The rupee has lost 1.2% of its value versus the dollar since the most recent statement on monetary policy was made in March.

These external account problems continue despite a sizable reduction in the current account deficit, which was $242 million in January (the lowest level since March 2021), primarily due to lower imports, which were down 38% YoY as a result of the government’s import restrictions and the drop in global commodity prices.


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