KARACHI: Pakistan’s central bank looks set to raise its key policy rate by 100 basis points to 17 percent at its review on Monday as it struggles to rein in persistently high inflation, according to the median estimate in a Reuters poll. Eighteen of the 22 economists and market watchers surveyed said there would be a hike — 14 of them predicted 100 basis points (bps), three expected 200 bps, and one 150 bps.
Four respondents expected rates to remain unchanged. In its last policy meeting in November, the bank unexpectedly pushed up the rate by 100 bps to 16 percent. It has raised rates by a total of 625 bps since January 2022. The government is also looking to slow import-led consumption to preserve falling foreign exchange reserves in the face of a stalled bailout program from the International Monetary Fund.
“With the rising inflationary trend alongside the same trend in core inflation and expected pressure amid fiscal adjustments prior to the resumption of the IMF program, SBP is expected to increase the policy rate by 1 percent,” said Tahir Abbas of Karachi-based brokerage firm Arif Habib Limited.
Policymakers are facing turmoil in the $350 billion economy and a sharp fall in reserves, which at $4.3 billion are not enough to cover even one month of imports. The disbursement of IMF funds has been delayed on account of Pakistan’s struggles to implement reforms.
The Consumer Price Index (CPI) rose 25 percent in the first half of the financial year 2023, which started in July. Despite cooling global energy prices, inflation has remained high and core inflation — non-food, non-energy — has also crept up, the State Bank of Pakistan said in November.
Ammar Habib, who expects no change in the policy rates, said a further increase would raise borrowing costs for the government, expand the fiscal deficit, and squeeze businesses further, which could result in an economic contraction and lower collection of already dwindling tax revenues.