At an off-cycle review set for today, the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is anticipated to increase interest rates, in order to fulfill IMF’s demand.
To speed attempts to secure the anticipated International Monetary Fund (IMF) tranche, it was decided to have this meeting sooner than the originally planned date of March 16.
The SBP Amendment Act established the MPC for SBP, which has the power to make decisions based on macroeconomic factors. Given the recent increase in Treasury yields and growing investor fears about rising inflation in Pakistan and around the world, the market is anticipating an increase in the benchmark interest rate.
According to reports, the coalition government has consented to one of the main requirements set forth by the IMF for renewing the loan programme by increasing interest rates from 17% to 19%.
To avoid the next T-bill auction failing, analysts advise moving up the MPC meeting date. The idea of further tightening monetary policy and increasing foreign exchange reserves by June 2023 has been discussed with the IMF.
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To achieve a favourable trajectory, the IMF has advised the SBP to increase the policy rate by 300 to 400 basis points. Raising taxes, eliminating all blanket subsidies, and easing exchange rate limitations are just a few of the steps Pakistan is doing to win IMF funds.
Notwithstanding the government’s optimism over a settlement with the IMF, indications suggest that the lender anticipates an increase in interest rates. Reviews of off-cycle rates are common in Pakistan.
