Another rate hike looms amid IMF conditions as SBP to reveal monetary policy today
Business
Most experts are fearing 1pc increase in interest rate
KARACHI (Web Desk) – The State Bank of Pakistan (SBP) is all set to announce its latest monetary policy today (Monday), as the Monetary Policy Committee (MPC) will meet in Karachi head office, with many experts fearing further hike in interest rate which is already touching the historic-high of 22 per cent.
In this connection, Reuters in an earlier report quoted analysts as saying that Pakistan's central bank will likely raise its key interest rate again on Monday to tackle persistently high inflation, giving in to pressure from the International Monetary Fund (IMF).
The move is expected despite the fact that the business community has been critical of the rate hike trend, citing paralysed economic activity which means no expansion or growth in businesses and thus no new job opportunities for the people who have been crushed by unprecedented inflation.
Hence, reduced purchasing power means the domestic demand has shrunk amid a significant decline in exports due to high cost of production making the produce expensive in world markets where too the people are feeling the heat because of high inflation.
Reuters mentioned in its report that Pakistan must continue its monetary tightening cycle, the IMF said in a staff report earlier in July, a week after the lender approved a new bailout arrangement with the South Asian nation which helped it avert a debt default.
Nine out of 16 analysts predicted the SBP will raise the key rate by 100 basis points (bps) to 23pc at its policy meeting next week, while one saw a smaller 50 bps increase and six expected no change.
The SBP has raised its key policy rate by 12.25 percentage points since April 2022, mainly to curb soaring inflation.
However, it held rates steady in June saying inflation had peaked at 38pc in the preceding month. But before the end of the month, it raised rates by 100 bps at an emergency meeting in an effort to secure IMF funds, citing "slightly deteriorated inflation outlook".
In the Memorandum of Economic and Financial Policies (MEFP) that resulted from its talks with the IMF, Pakistan said it stands ready to consider further action at the next monetary policy committee meeting and subsequent ones until inflation and inflation expectations are on a clear downward path.
The SBP on its website says: “Monetary policy involves central banks’ use of instruments to influence interest rates and/or money supply in the economy with the objective to keep overall prices and financial markets stable. Monetary policy is essentially a stabilization or demand management policy that cannot impact long-term growth potential of an economy.”
However, the ground realities are totally different when it comes to monetary policy “cannot impact long-term growth potential of an economy” as the record-high interest rates and inflation skyrocketing the cost of production mean no one is ready to invest in productive sectors. Thus, this rate policy advocated by the IMF and pursued by top central banks will push Pakistan further into quagmire.
