AHMED MALIK

KARACHI: The Monetary Policy Committee of the State Bank of Pakistan is expected to increase interest rate by 150bps to 23.5 percent in its next meeting as precautionary measure to address the persistently high levels of inflation in the country, analyst said.

“The monetary policy committee is set to commence its next meeting on September 14, 2023 and we expect the SBP to increase the policy rate by 150bps to 23.5 percent in this meeting,” Sana Tawfik at Arif Habib Limited said.

To recall, during its scheduled meeting on July 31, 2023, the SBP kept the policy rate unchanged.

The MPC acknowledged a reduction in economic uncertainty since the last meeting and successful resolution of near-term external sector challenges, which boosted investor confidence. However, it had highlighted that there were some emerging upside risks to inflation.

“In September’s policy, we believe, the SBP might consider increasing interest rates as a precautionary measure to address the persistently high levels of inflation in the country,” Sana Tawfik said.

During the first two months of FY24, inflation remained alarmingly high, averaging around 27.8 percent. “This ongoing inflationary trend is expected to persist, with our forecasts indicating an average inflation rate of 28.5 percent until December 2023, particularly following an expected peak in September 2023.”

Several significant factors are contributing to this sustained inflationary pressure, including the depreciation of the PKR against USD, the surge in global oil prices, including Arab Light (up 5.2 percent since last MPS), and elevated food prices. Additionally, there are expectations of a substantial increase in gas tariffs of 40-45 percent, which could further amplify inflationary pressures.

Moreover, the rise in oil prices in international market has not only contributed to inflation but has also added considerable stress to Pakistan’s current account deficit, given the nation’s heavy reliance on oil imports.