Analysts say that the State Bank of Pakistan (SBP) is expected to raise the benchmark policy rate at its Monetary Policy Committee (MPC) meeting on September 14.
SBP benchmark policy rate
Monetary policy is a set of tools used by the central bank to control the amount of money in the economy. This helps the economy grow and keeps inflation low.
Since April, the SBP has raised the policy rate by 12.25 percentage points, mostly because inflation is going up.
Four of the analysts that Profit talked to think that the policy rate will go up at the next meeting.
Amreen Soorani, who is in charge of research at JS Global, and Fahad Rauf, who is in charge of research at Ismail Iqbal Securities, both think that the policy rate will go up by 100 basis points (bps).
Top analyst at Arif Habib Limited
A top analyst at Arif Habib Limited, Sana Tawfik, said that the policy rate could go up by 100-150 bps.
She also said that the increase was “not warranted because inflation would go down in the second half of the fiscal year because of the “high-base effect.”
Since the middle of 2022, inflation has been high, and in May of this year, it hit a record high of 37.97%.
But it has dropped below 30 percent in recent months because of the high-base effect.
Since inflation was already high last year, the difference between FY23 and FY24 won’t be as big. In August, it was 27.4%.
Tawfik said that there would be pressure on inflation in the near future because the rupee was falling in value, oil prices were high, and power and gas prices were going up.
“So, it’s clear that there will be pressure to raise prices in the short run. It depends on what the SBP looks at—core inflation or a base for the future.
“What’s important is that inflationary pressure comes from both the supply and the budget sides.
The SBP can keep raising interest rates, but unless there are changes to the budget, electricity, and other areas, the cost of borrowing for the government will only go up.
The expert pointed out that the IMF had asked for a tighter monetary policy, so the central bank could also raise the policy rate.
Yousuf Farooq, who is in charge of research at Chase Securities, said that the SBP might think about raising the policy rate to stop the rupee’s value from going down.
According to the Exchange Companies Association of Pakistan, it ended at an all-time low of Rs 307.1 per US dollar on the interbank market on Tuesday, while it was trading at Rs 323 per dollar on the open market. Most likely, the real rates that exchange companies offer will be much higher.
Farooq, on the other hand, said that the rupee was not weak because of current imports (the government lifted restrictions on opening letters of credit after making a deal with the IMF), but because of payments that were due last year, when the central bank asked importers to buy things with 180-365 days of credit.
To read our blog on “SBP to issue Rs. 100 coin on 10th anniversary of CPEC,” click here
