The market clearly expects the central bank to keep the interest rate unchanged at 9.75 percent at the Monetary Policy Committee (MPC) meeting tomorrow (Monday), but conflicting signals from the overheating global economy and the rush to close down because of the Omicron variant of the coronavirus is leaving investors split about the long term direction of lending rates. SBP’s goal of mildly positive real interest rates would eventually require a couple more hikes, of course, but seeing how the economy might slow down because of the virus, at a time of high inflation, this hawkish outlook might not be very feasible. So the future is anything but certain. There’s also considerable concern, at least among economists that are not part of the ruling party’s team, that monetary and fiscal policies are still looking away from each other. There’s not much doubt that the SBP is tightening the screws on money supply, pretty much in line with global practice at the moment, but there’s both push and pull in fiscal policy that makes determining its direction a little more difficult than it ought to be. The mini-budget was full of the contractionary policy that the IIMF is pushing, but it’s also still laced with the throw-outs, like the unaffordable Ehsaas program, that are necessary for the government’s political survival in times of very high inflation. So what the future holds is really a mixed bag. If Omicron takes too much life out of the economy, then further rate hikes might not do much to control inflation and all they will probably achieve in the end is stifling growth even further. But if it fizzles away, like it’s expected to, then rebounding demand is going to push prices up even more and require a much more hawkish stance from the SBP. The MPC might not spring any surprises immediately, but nothing can be said about subsequent meetings. *