The State Bank of Pakistan (SBP) is expected to maintain its record 22 per cent interest rate at its upcoming policy meeting on Monday.
This marks the seventh consecutive meeting with rates held steady, as Pakistan navigates discussions with the International Monetary Fund (IMF) for a new long-term funding arrangement.
The central bank’s decision comes ahead of an IMF Executive Board meeting to discuss a $1.1 billion disbursement, the final tranche of a $3 billion Stand-By Arrangement.
A Reuters poll of 14 analysts predicts the SBP will hold its rate, though there are mixed forecasts within the group.
Four analysts anticipate a 100-basis-point (bps) cut, while two expect a 50-bps cut. Eight believe the SBP will cut rates before securing a new IMF programme.
The central bank’s next Monetary Policy Committee (MPC) meeting is scheduled for June 10, potentially before Pakistan’s expected new IMF agreement.
Finance Minister Muhammad Aurangzeb mentioned that discussions with the IMF for a longer-term programme will begin next month, aiming for a staff-level agreement by early July.
Pakistan’s last rate hike was in June 2023 to combat inflation and meet IMF requirements. Consumer Price Index (CPI) data for March showed a 20.7 per cent increase from the previous year, with a peak of 38 per cent in May.
However, inflation is slowing, partly due to the “base effect,” with April’s CPI expected to be around 17.5 per cent, according to businessman Arif Habib.
The SBP’s monetary policy decisions will consider various factors, including inflation trends and geopolitical tensions affecting fuel prices.
Tahir Abbas, head of research at Arif Habib Limited, suggests rates won’t be cut until a new IMF programme is in place.
Looking ahead, Mustafa Pasha, Chief Investment Officer at Lakson Investments, predicts a small rate reduction in the current quarter, with significant cuts in the September quarter.
According to Business Recorder, this is driven by the need to roll over approximately 6.7 trillion rupees in domestic treasury bills in late 2024 and expected stabilization in inflation and foreign exchange inflows.
He forecasts that the interest rate could settle around 17 per cent by December.
