KARACHI: Pakistan’s central bank is going to meet today (Monday) to decide what its key policy rate will be for the next six weeks. This is to keep inflation and economic growth in balance. The State Bank of Pakistan (SBP) surprised everyone on April 7 by raising its benchmark interest rate by a big 250 basis points (bps) to 12.25 percent. This was done to keep prices and the economy stable. Since September 2021, the SBP has raised the rate by a total of 525 basis points to keep inflation in check and reduce the current account deficit. The acting governor, Dr Murtaza Syed, will lead the first meeting of the Monetary Policy Committee (MPC) to decide on the key policy rate. Market rumours point to a 100 bps increase, which would bring the rate to 13.25%. The central bank would like to counteract a high inflation reading and a likely rise in energy prices to make it easier to restart a multibillion-dollar International Monetary Fund (IMF) programme that has been put on hold. Some experts, however, think that the monetary policy decision may not be as predictable as expected this time because of political and economic uncertainty at the global, regional, and domestic levels. In a report, an analyst at Topline Securities said, “Given worries, rising inflation, and a weakening currency, we expect the SBP to raise the policy rate by 100bps.” “Since the last Monetary Policy Statement (MPS) in April, rates on the secondary market, such as T-Bill/KIBOR rates, have gone up by around 200bps due to uncertainty about the removal of subsidies on gasoline and diesel and the continuation of the IMF programme.” Treasury bills cut-off yields, on the other hand, went down for the first time in almost a year at the last auction on May 19. They went down by 5–29bps, and the yields for 3, 6, and 12 months were 14.49, 14.70, and 14.75 percent, respectively. Topline Research polled top fund managers to find out what they thought about the country’s economic future. Based on the results of the survey, about 54% of the people who took part expected an increase of 100bps, 14% expected an increase of 150bps, and 11% expected an increase of 200bps or more. On the other hand, only 13% of participants think that the rate will go up by 50bps, while 9% think that nothing will change. Pakistan’s economy is having a hard time right now because its foreign exchange reserves are running out, its fiscal deficit is rising because of huge subsidies for gasoline and diesel, and the new government isn’t sure what to do about key economic issues. “It will be very important for the government to make the necessary changes, such as getting rid of the subsidy on gasoline and diesel, taking steps to cut down on imports, and getting better at collecting taxes. This will clear the way for the IMF programme, which is currently on hold, to start up again. It will also lead to dollar flows, which could ease pressure on the currency and foreign exchange reserves in the future, said the analyst. Inflation is likely to go up even more over the next few months. In the last two months, the rupee has lost nearly 10% of its value against the US dollar. Last week, it broke through the 200 mark. The rupee has been under a lot of pressure because it can only cover imports for less than two months, and the IMF bailout has been slow to come. Consumer price index (CPI) inflation is likely to rise to 15–16 percent because the rupee is getting weaker and fiscal slippages are at record highs. This makes a strong case for at least a 100bps increase in interest rates.