SBP may keep policy rate on hold today
Pakistan’s central bank is scheduled to review the current state of the economy and announce its key policy rate.
Sources said the bank will maintain the rate at the current level of 15% for the next seven weeks. Commercial banks, however, expect that the State Bank of Pakistan’s (SBP) monetary policy committee (MPC) will increase the rate – probably by 100 basis points – considering the weekly inflation has hit a record high of over 42% in the week ended on Friday and the benchmark CPI inflation spiked to a 14-year high at around 25% in July. The inflation is anticipated to increase further amid a continuous increase in energy prices in the country, while the policy rate is a tool available with the central bank to control inflation.
The State Bank had bank increased the rate by 125 basis points in its last meeting in July to 15%, though a majority of pundits had developed consensus on a 100-basis- point increase, while a minority section of analysts had anticipated that the central bank would maintain the status quo.
The key policy rate, also known as the benchmark interest rate, remains a tool available to central banks around the world to create a balance between inflation reading and economic growth.
Most of them (including the SBP), however, have maintained the real interest rate (policy rate minus inflation) in the negative territory since the outbreak of Covid-19 pandemic to ease economic hardships. Analysts, who think the rate will remain unchanged on Monday, said the uptrend in inflation was mostly due to an increase in energy prices, which was made to win back the IMF loan programme. He has apparently achieved one of the two major objectives of the higher policy rate. Imports have been cut down sharply to $4.9 billion in July 2022 through policy measures compared to $7.7 billion in June 2022.
