KARACHI (Web Desk) – The State Bank of Pakistan (SBP) is set to hold the Monetary Policy Committee (MPC) meeting today (Monday) as the country has grappling with a severe financial crisis amid persistent inflation and high interest rates.
It is widely believed that the MPC will hold the key policy rate at a 22 per cent which was raised to the current level in June and has been maintained since then during the last six meetings.
On the other hand, the International Monetary Fund (IMF) Executive Board in Washington is scheduled to approve the disbursement of $1.1 billion – the last tranche under the $3bn Stand-By Arrangement.
Pakistan is now hoping for a bigger loan programme worth $6bn to $8bn spanning over three to four years, as an IMF team is expected to arrive in Islamabad sometime next month to discuss the terms and conditions.
It is not just the Extended Fund Facility (EFF) with Pakistan also aiming at getting additional funding under climate financing – a request yet to be approved but will be deliberated upon during the upcoming talks.
The median estimate in a poll of 14 analysts conducted by Reuters predicts the SBP will hold rates steady. However, four of them are forecasting a 100 basis point (bps) cut, while two expect a 50-bps cut on Monday.
Eight respondents expect a rate cut before Pakistan signs a new programme with the IMF. There is another MPC meeting on 10 June 2024, which is possibly before Pakistan gets another IMF programme.
Pakistan's key rate was last raised in June to fight persistent inflationary pressures and to meet one of the conditions set by the IMF for securing the bailout.
The Consumer Price Index (CPI) for March rose 20.7pc from the year before, slowing down partly due to the "base effect", touching a record high of 38pc in May 2023.
Tahir Abbas, head of research at Arif Habib Limited said that the central bank is unlikely to cut rates before getting a new IMF programme. "The monetary policy will also consider the inflationary outcome of tensions in the middle east and its impact of fuel prices, along with the Fed's delay in monetary easing," he added.
"Expect a symbolic reduction in the current quarter (till June), with aggressive cuts to follow in the September quarter as the government has to roll over approximately 6.7 trillion rupees of maturing domestic treasury bills in the last quarter of the calendar year," said Mustafa Pasha, CIO of Lakson Investments.
He added that by then there will be greater clarity on inflation and FX inflows. "Historically, the SBP has cut rates in the first year of an IMF programme and we expect the policy rate to settle around 17pc by December."