Pakistan central bank seen raising key rate to record 22% as inflation bites

Pakistan central bank seen raising key rate to record 22% as inflation bites
© Reuters. FILE PHOTO: The logo of the State Bank of Pakistan (SBP) is pictured on a reception desk at the head office in Karachi, Pakistan July 16, 2019. REUTERS/Akhtar Soomro

By Ariba Shahid

KARACHI, Pakistan (Reuters) – Pakistan’s central bank looks set to raise its key interest rate by 200 basis points to a record high of 22% at its review on April 4, as it struggles to bring down stubborn inflation, the median estimate in a Reuters Poll showed.

Eighteen out of 20 economists and market watchers surveyed said the central bank would hike rates, with 12 of them predicting a 200 bps increase. Four poll participants saw the benchmark raised by 100 bps, while two forecast a 150 bps hike. Two respondents expected rates to remain unchanged.

Worldwide growth in consumer prices has compounded high inflation in Pakistan caused by a weakening currency, energy tariff increases and elevated food prices due to Ramadan.

The latest consumer price-based inflation clocked a 31.5% rise on year in February, the highest in nearly 50 years.

Food, beverage, and transportation prices have all surged more than 45% and the country is in talks with the IMF to unlock its next tranche worth around $1.1 billion as part of a $6.5 billion bailout agreement reached in 2019.

On March 2, the State Bank of Pakistan (SBP) raised its key rate by 300 basis points to 20%, exceeding market expectations, likely to meet a key requirement of the International Monetary Fund for release of its pending bailout funds.

“The CPI is expected to be 34-36% due to hike in food prices in Ramadan. The weekly sensitive price index is also at an all time high of 47%,” said Saad Habib, head of equities at Al Habib Capital Markets, a brokerage firm in Karachi.

The State Bank of Pakistan has raised rates by a total 10.25% since January 2022.

Shivaan Tandon, an economist at Capital Economics, expects inflation to rise further in coming months as a weaker currency, higher taxes and shortages of key goods continue to exert upward pressure on prices.

“Policymakers will also be keen to impress the IMF, by displaying their commitment to towards containing inflation, to secure a much-needed funding to mitigate the risk of default,” he added.

Some economists, however, felt with the last hike delivered just about a month ago, the central bank may prefer to wait to see the impact of the rate hikes on the economy before tightening further.

For the individual poll responses, see table below:

# Name/ Organization Expectation

1 Multiline Securities 0

2 Vector Securities 0

3 Arif Habib Limited 100

4 Capital Stake 100

5 Intermarket Securities 100

6 Pak Oman Asset Management 100

7 Foundation Securities 150

8 JS Capital 150

9 AKD Securities 200

10 Al Habib Capital Market 200

11 Ammar H. Khan 200

12 Capital Economics 200

13 EFG Hermes 200

14 Equity Global 200

15 FRIM Ventures 200

16 Ismail Iqbal Securities 200

17 Lakson Investments 200

18 Pak Kuwait Investment Company 200

19 Topline Securities 200

20 Uzair Younus 200

Median 200

(This story has been corrected to fix the number of poll participants in paragraph 2)

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