Crisis-stricken Pakistan likely to raise rates; rise of at least 150 basis points expected: Reuters poll

KARACHI, Sept 12 (Reuters) – Pakistan’s central bank is expected to raise rates when it meets on Thursday to decide policy, as it seeks to tackle soaring inflation and shore up dwindling foreign reserves that have sent the rupee to record lows. .

The economic and political crises have seen the State Bank of Pakistan raise its benchmark rate by 12.25 percentage points to 22% from April 2022, although it held it steady at its last meeting in July.

A Reuters poll of 17 analysts shows that 15 predict a rate hike. Of them, nine predict an increase of at least 150 basis points. The other two analysts expect the rate to remain unchanged.

The South Asian nation is trying to navigate a rocky path to economic recovery under an interim government after a $3 billion IMF lending program, approved in July, helped avert a sovereign debt default. .

Reforms set as conditions for lending have complicated the task of keeping price pressures and rupee declines under control. An easing of import restrictions and the elimination of subsidies – both conditions of the bailout – have led to increases in energy prices.

Although headline inflation fell slightly to 27.4% in August, food inflation remains elevated at 38.5%. The rupee has also fallen to record lows, falling 6.2% in the last month alone, although it has regained some ground in recent days after a crackdown on illegal currency transactions.

“The recent currency depreciation is also a key reason why another rate hike is likely, especially since using foreign exchange reserves, which are still very low, is not a viable option,” said Shivaan Tandon. , economist at Capital Economics.

He added that while import controls have been relaxed, the move has pushed the current account back into deficit, raising the costs of imports and debt repayments.

“With import controls no longer an option, due to the agreement with the IMF, policymakers may have to resort to tighter monetary policy to reduce demand and control the deficit,” he said.

Pakistan’s central bank said in July that it expects inflation to be on a downward trajectory over the next 12 months.

Analysts also noted that increases in cap yields at Treasury bill auctions (the highest yield at which a bid is accepted) indicate that market participants expect a rate hike.

For individual survey responses, see the following table:

Our standards: The Thomson Reuters Trust Principles.