Pakistan interest rates expected to maintained at a 22pc high on Monday
Business
Stock market has recently suffered losses amid fading hopes of reduction in borrowing costs
KARACHI (Reuters/Web Desk) – The State Bank of Pakistan (SBP) is widely expected to hold its key interest rate at a record 22 per cent for the sixth straight policy meeting on Monday, as inflation risks continue to loom, but a majority of analysts expect rate cuts from the second quarter of this year.
Monday's policy decision would be the last ahead of the April expiry of a $3 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF).
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The median estimate in a Reuters poll of 17 analysts predicts the SBP will hold rates steady.
Three analysts are forecasting a 100-basis-point (bps) cut, while one expects a 25-bps cut on Monday. Fourteen of those surveyed expect a rate cut in the April-June quarter.
Pakistan's key policy rate was last raised in June to fight persistent inflationary pressures and to meet one of the conditions set by the IMF for securing the bailout.
The country's consumer price index (CPI) for February rose 23.1pc year on year, its slowest rate since June 2022, partly due to the "base effect".
"Several inflationary risks loom large, including the potential implementation of sales tax on petroleum products, heightened food inflation during Ramazan, and the prospect of entering a new IMF programme," Saad Hanif, deputy head of research at Ismail Iqbal Securities, said.
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In January, the central bank raised the average inflation forecast for the fiscal year ending in June to 23pc-25pc, from a previous projection of 20pc-22pc, due to rising gas and electricity prices.
Inflation hit an all-time high of 38pc in May last year, driven partly by new taxation measures imposed to comply with IMF's demands for a rescue programme that helped the nation avert a sovereign debt default.
Finance Minister Muhammad Aurangzeb during a recent interview with a local media outlet said: "I do think during the course of this year, we will see the rates coming down".
Mustafa Pasha, chief investment officer at Lakson Investments, said the chances of a rate cut are materially growing with each monetary policy meeting.
"We expect a symbolic cut of around 100 odd bps over Q2 of 2024, with the more aggressive moves coming in the back end of the year," Pasha said.
