Pakistan’s central bank is widely expected to raise its key policy rate by 200 basis points in an off-cycle meeting as it struggles to unlock critical funding from the International Monetary Fund, a Reuters poll showed. | Reuters
In its last policy meeting in January, the bank raised the key rate by 100 bps to 17 percent, citing inflationary pressure. Inflation has since increased, with the Consumer Price Index clocking in at 27.5 percent in January.
“CPI for February will be approximately 29-30 percent and the policy rates need to be adjusted with respect to it,” said Saad Rafi, head of equities Al Habib Capital Markets, a local brokerage firm. The cash-strapped country is undertaking key measures to secure a $1 billion loan from the IMF, including raising taxes, and removing blanket subsidies and artificial curbs on the exchange rate.
A consensus amongst most of the participants was that the meeting had been brought forward to help meet IMF requirements of a rate hike that have been reported by the media, and pushed for by the government as it rushes to get a staff level agreement. “It is certainly damaging as far as the market perception is concerned with regards to SBP’s independence. The independence probably from the government, and not the IMF,” says Fahad Rauf, head of research at Ismail Iqbal Securities. He said the market had already incorporated a 200 bps hike in the last treasury bill auction where the government accepted bids with yields more than 200 bps higher than the policy rate.
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