The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) is expected to raise interest rates during an off-cycle review scheduled for today.
The decision to hold this meeting earlier than the previously scheduled date of March 16th was made in an effort to expedite efforts to secure the anticipated International Monetary Fund (IMF) tranche.
SBP’s MPC, established under the SBP Amendment Act, is authorized to make decisions based on macroeconomic fundamentals. Market expectations are for a benchmark interest rate increase, given the recent rise in treasury yields and growing investor concerns about rising inflation in Pakistan and globally.
Reports suggest that the coalition government has agreed to raise interest rates from 17 per cent to 19 per cent in response to one of the IMF’s key conditions for reviving the loan program.
Analysts recommend advancing the MPC meeting date to avoid the failure of the next T-bill auction. Discussions with the IMF have included the possibility of further monetary policy tightening and building up foreign exchange reserves by June 2023.
The IMF has urged the SBP to raise the policy rate by 300 to 400 basis points to achieve a positive trajectory. Pakistan is taking measures to secure IMF funding, such as raising taxes, removing blanket subsidies, and relaxing exchange rate restrictions.
While the government is optimistic about reaching a deal with the IMF, reports indicate that the lender expects interest rates to rise. Off-cycle rate reviews are not unusual in Pakistan.
