SBP may raise policy rate by 100bps to 13.25% State Bank of Pakistan

SBP may raise policy rate by 100bps to 13.25%

KARACHI: The State Bank of Pakistan (SBP) is scheduled to announce monetary policy on May 23, 2022 and may increase the key policy rate by 100 basis points to 13.25 per cent, analysts said on Tuesday.

According to the analysts at Arif Habib Limited, the monetary policy committee of SBP will convene on Monday (May 23rd, 2022) to announce the last scheduled monetary policy of 2021/2022.

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They expect the central bank may increase the policy rate by 100 basis points to 13.25 per cent in the upcoming monetary policy statement.

To recall, in an emergency monetary policy meeting held on April 07, 2022, the SBP increased the benchmark policy rate by 250 basis points to 12.25 per cent.

The MPC stated that it believed that since the monetary policy meeting held in March 2022, the outlook for inflation had deteriorated and risks to external stability had risen.

Therefore, these developments necessitated a strong and proactive policy response.

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To recall, headline inflation has remained in the double digits since November 2021 mainly on the back of uptick in food and energy prices.

This phenomenon still continues with headline number hitting almost two years high in April, clocking-in at 13.4 per cent with pressure mainly emanating from higher food and commodity prices.

In April’s MPS, SBP stated that the average inflation forecasts had been revised upwards to slightly above 11 per cent for fiscal year 2021/2022 before moderating in the next fiscal year.

Moreover, in the last policy (April 2022), SBP had termed its action of rate hike as ‘decisive’ and a timely measure to ensure that the goal of financial stability.

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In addition, the Governor in post MPS (Analyst) Briefing had hinted at a ‘good news’ regarding IMF but conditional upon certain measures pending at government’s end.

The next round of meeting with the IMF starts from May 18th (source: news reports) so they expect government to soon consider rolling back of fiscal relief measures in order to get seventh review through, successfully.

However, this step of government is most likely to further augment inflationary pressure hence, SBP might want to act proactively and consider rate hike in the upcoming policy.

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