KARACHI: Pakistan is set to raise benchmark interest rate as the central bank has announced the monetary policy committee (MPC) to meet ahead of schedule on March 02, 2023.
The meeting of the MPC was scheduled on March 16, 2023.
“The forthcoming meeting of the Monetary Policy Committee has been preponed and now it will be held on Thursday, March 02, 2023,” the State Bank of Pakistan (SBP) said in a Tweet.
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Reportedly, the SBP is reviewing the policy rate ahead of schedule in order to meet condition of the International Monetary Fund (IMF). The reports suggested that the IMF had demanded the authorities to raise the policy rate according to the mounting inflation.
As per news flows, increase in policy rate by 200-300 basis points is IMF’s key demand for long pending Staff Level Agreement (SLA) for the ninth review of EFF program, said analysts at Insight Securities.
Headline inflation based on Consumer Price Index (CPI) for the month of February 2023 to settle at 30.5 per cent Year on Year (YoY) compared to 27.6 per cent in January 2023 and 12.24 per cent in February 2022.
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Analysts at Arif Habib Limited said that with this, average inflation for eight months of fiscal year 2022-2023 clocks-in at 26.04 per cent compared to 10.49 per cent in the corresponding months of the last fiscal year.
The YoY uptick in Consumer Price Index (CPI) will likely be led by Food (44.9 per cent YoY), Transport (57.0 per cent YoY), Housing (11.7 per cent YoY), Restaurants & Hotels (31.3 per cent YoY), Household Equipment (30.0 per cent YoY), Recreation and Culture (1.4 per cent YoY), Clothing & Footwear (16.0 per cent YoY) and Miscellaneous (29.1 per cent YoY).
On a MoM basis, CPI reading is expected to increase 3.52 per cent. This month we expect MoM inflation to remain under pressure mainly on the back of surge in Food index, transportation and housing index.
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The Food Index is expected to post an increase of 3.9 per cent MoM in January 2023. As per Sensitive Price Indicator (SPI) data published by the Pakistan Bureau of Statistics (PBS), increase in average prices of rice, chicken, ghee, fruits, vegetables and pulses will keep the inflation in-check.
Moreover, a jump in LNG prices and gas charges is likely to increase the Housing index by 2.0 per cent MoM. In addition, the transportation index too is expected to post a jump of 16.9 per cent MoM on the back of higher domestic petroleum product prices.
The analysts expect headline inflation to remain elevated in the remaining months of the current fiscal year before slowing down with the onset of the new fiscal year. They also expect pressure mainly emanating from any further tariff hikes, imposition of recent additional taxes, weaker currency against the greenback and surge in food prices.
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On the monetary policy front, SBP increased the benchmark policy rate by 100bps to 17 per cent in January 2023 policy. In its statement, SBP mentioned that high levels of CPI have been noted and could pick up higher if not “unchecked.”
Hence, the committee felt strongly that inflation must be anchored, as the long term costs of letting it become entrenched outweighs the immediate costs of bringing it down, so as to embark on a path of price stability and sustainable growth.
