State Bank likely to raise key interest rate to 21pc in next policy review

KARACHI – The State Bank of Pakistan is likely to jack up the interest rate further in the upcoming policy review to deal with the back-breaking inflation.

Reports in local media quoting a brokerage firm suggest that the monetary policy committee is set to commence its next meeting on April 4 and while the central bank is expected to increase its policy rate by 100 bps (basis points) to a historic 21 percent.

The firm reportedly conducted a survey and revealed that the market is expecting the upcoming monetary policy by taking feedback from different sectors.

More than 57 percent of the respondents were positive that the central bank will increase the policy rate; 30.8pc are expecting a rate hike of 100bps, on fifth predicted 200bps while others expected no change.

Earlier this month, the State Bank of Pakistan increased the benchmark interest rate by a significant 300 basis points (bps), taking it to 20% as Pakistan is desperate to unlock the International Monetary Fund (IMF) deal.

“At its meeting held on 2nd March 2023, the Monetary Policy Committee (MPC) decided to increase the policy rate by 300 basis points to 20 percent,” it said.

The MPC statement said that in today’s meeting, the committee noted that the recent fiscal adjustments and exchange rate depreciation have led to a significant deterioration in the near term inflation outlook and a further upward drift in inflation expectations, as reflected in the latest wave of surveys.

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The recent development comes on the heels of further monetary tightening to control inflation at the central bank's emergency Monetary Policy Committee meeting which is due today.