The State Bank of Pakistan (SBP) is expected to increase its benchmark interest rate in its meeting on January 23 to counter rising inflation and decreasing foreign reserves, a local daily reported on Sunday.
“The majority of the participants (74) expect the policy rate to increase by 100-200 basis points (bps). Out of these, 37% anticipate a 100bps increase, 18% expect a 150bps increase, and 19% eye a 200bps hike” Topline Research, a brokerage house, was quoted as saying in The News.
“We believe that the policy rate will rise by 100 basis points in the next monetary policy, but future rate increases cannot be ruled out if the inflation rate does not decline and external difficulties remain.” A Topline Research analyst said.
It should be noted that the consumer price index (CPI) inflation increased to 24.5% since the last monetary policy statement on November 25. Urban core inflation (non-food non-energy) stood at 14.7% in December versus 14.6% in November. Rural Core Inflation increased to 19.0% in December, compared with 18.5% in the previous month.
The rapidly dropping foreign exchange reserves, the weakening rupee, and the deteriorating macroeconomic indicators have plunged Pakistan’s economy into a deep crisis. Following a tax goal impasse with the International Monetary Fund, Pakistan’s economy was in dire need of cash. The situation became more serious as a result of floods that inundated a third of the country and reduced its growth by 50%.
