Pakistan set for another rate hike by 100 bps to 21%, highest ever   

Pakistan crisis: Pakistan’s central bank – State Bank of Pakistan– is likely to hike interest rates further to 21 per cent in its upcoming policy review meeting in April. The rate hike will be aimed at arresting inflation levels in the cash-strapped country, said the Pakistani brokerage firm Arif Habib Limited (AHL). If it is materialised, this will be the biggest interest rate hike by the SBP. 

AHL said in its note that the next monetary policy committee meeting is scheduled on April 4 and the SBP will hike its policy rate by 100 bps to 21 per cent. “The monetary policy committee is set to commence its next meeting on April 4th and we expect the SBP to raise its policy rate by 100bps to 21 per cent in this meeting,” the note read. 

The note further stated inflation is likely to remain higher given additional taxation, tariff hikes, the weakening of the Pakistani rupee, and the Ramadan season. It also said that core inflation continues to go up each month due to weakening PKR amid ongoing debt repayments and lower financial inflows. 

This comes after the SBP hiked interest rates by 300 bps to 20 per cent in March. The SBP’s monetary policy committee had also revised its CPI inflation forecast from 21 per cent to 23 per cent to 27 per cent to 29 per cent. This was the biggest hike in almost 27 years. The last time the interest rates touched 20 per cent was in October 1996. The Pakistani rupee has lost around 1.2 per cent of its value against the US dollar since this policy announcement. 

The AHL further noted, “Besides controlling inflationary pressure, the decision to raise the policy rate will also facilitate the long-awaited ninth review with the IMF, which is crucial for Pakistan to receive a tranche of $1.2 billion and unlock further inflows from other international creditors.” 

Pakistan has been engaged in negotiations to get the bailout package from the International Monetary Fund (IMF) but has not succeeded as of now. It is imperative that Pakistan secure the IMF tranche as it has been short of forex reserves, which has led to import-related curbs and a shortage of essentials like fuel and food items.

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