Pakistan’s central bank – State Bank of Pakistan (SBP) – is likely to hike policy rates by 200 basis points to a record 22 per cent. Pakistan is battling record inflation as prices of household items have skyrocketed in the last few months. In the first week of March, the SBP increased the interest rate by 300 basis points to 20 per cent.
Pakistan’s Dawn reported that Pakistan’s central bank was set for another hike and a clear indication was given in the latest treasury bill auction held on March 22 when the yields on the short-term government certificates rose to almost 22 per cent. The SBP’s next monetary policy meeting is scheduled for April 4.
In the latest treasury bill auction, cut-off yields on three-, six-, and 12-month certificates were increased by 100bps, 114bps, and 50bps, respectively, the report said. Based on these cut-off yields, the report said, market participants expect interest rates to be increased by another 200bps.
According to analysts in the financial sector, a hike in the interest rate could be a need for the government since inflation has gone out of control. The inflation jumped to 31.5 per cent in February, reflecting that the measures taken by the central bank and the government have failed to control price rises.
In February, Pakistan’s inflation on weekly basis crossed 40 per cent-mark, the highest in five months.
In an editorial, Dawn today said that this would be perhaps the toughest Ramazan that most Pakistanis have experienced in their entire lives as the inflation has skyrocketed and it seems to go up in the coming weeks. It said short-term inflation had surged to 46.7 per cent year-over-year in the week that ended on March 22, with onion, wheat, gas, petrol and diesel, tea, rice, and egg prices almost double or more of what they were last year.
“Pakistanis are losing their purchasing power almost by the day — in other words, they can afford to purchase less food than they could just a day before,” the editorial wrote.
Earlier this month, Pakistani brokerage firm Arif Habib Limited said the SBP is expecting to hike the rate by 100 bps to 21 per cent. It said besides controlling inflationary pressure, the rate hike will also facilitate the long-awaited ninth review with the IMF, which is crucial for Islamabad to receive a tranche of $1.2 billion. Pakistan has been engaged in tough negotiations to get the bailout package from the IMF but has not succeeded as of now.