Daily Times

Onlookers, experts, and economists are divided on rate-hike expectations for the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) meeting today. As a response to Pakistan’s 13-year-high inflation, the State Bank of Pakistan (SBP) is expected to hike its key policy rate by 125 basis points.

According to the statement made by the State Bank of Pakistan (SBP), “The Monetary Policy Committee of SBP will meet on Thursday to decide about Monetary Policy. Acting Governor State Bank of Pakistan, Dr. Murtaza Syed will give a press conference on the same day after the MPC meeting.”

Reuters conducted a quick poll of economists, analysts, and senior professors and found that their views ranged from 50 to 200 basis points on the magnitude of the hike. There were two people who didn’t think there was a need to raise the rate.

After Pakistan posted its highest headline inflation number since December 2008 for the month of June, the market is eagerly expecting the news that would be made by the MPC. Many people have the opinion that the central bank will react by taking harsh action.

Prior to this meeting in May, the MPC announced an increase in the key interest rate of 150 basis points. Economic real interest rates have fallen considerably as a result of the present policy rate of 13.75 percent and inflation well beyond the target rate.

Former Citigroup economist and current contributor to several publications, Yousuf Nazar, remarked that the State Bank of Pakistan’s most recent monetary policy committee statement “is confirmation that the State Bank of Pakistan is significantly behind the curve on anticipating inflation. “An additional rise in interest rates would increase the government’s debt payment costs and harm the economy. Exchange rates and general demand will be unaffected,” he added.

In addition to increasing the government’s debt payment costs, a further rise in interest rates would harm the economy. In terms of the currency rate or general demand, it will have little effect.

In light of rising global energy prices, abrupt fuel subsidies ending, and SBP’s announcement that the economy had revived much more rapidly than expected, most expected a rise in the price of fuel.