KARACHI: The State Bank of Pakistan (SBP) is likely to further tighten policy settings in its review next week to tackle runaway inflation and help the battered rupee, analysts said on Friday.
The market awaits the outcome of the May 23 SBP meeting for clues on its political trajectory after a deteriorating inflation outlook, increased external stability risks, as well as domestic political uncertainty.
The SBP raised its benchmark rate by 250 basis points to 12.25% at an emergency meeting, the biggest hike in years, held in April.
“Given concerns over rising inflation and a weaker currency, we expect SBP to raise the policy rate by 100 basis points. [basis points]“said a Topline Securitas analyst in a report.
“Since the last monetary policy statement in April, secondary market rates, including treasury bill/KIBOR rates, have risen by around 200 basis points due to uncertainty over the removal of subsidies on the market. ‘gasoline / diesel and the continuation of the IMF program.’
Threshold yields on Treasuries, however, fell for the first time after nearly a year when the last auction held on May 19 fell 5 to 29 basis points, yields on Treasuries at three , six and 12 months reaching 14.49%, 14.70. percent and 14.75 percent respectively.
Topline Research conducted a survey of leading fund managers to gauge their views on the country’s economic outlook.
According to the survey results, approximately 54% of participants expected a 100 basis point increase, 14% of participants expected a 150 basis point increase and 11% expected a 200 basis point increase. basic or more.
In contrast, only 13% of respondents expect a 50 basis point increase while 9% expect no change.
Pakistan is currently going through difficult economic times as depleted foreign exchange reserves, rising budget deficit amid huge petrol and diesel subsidies and the new government’s indecision on key economic measures are exacerbating economic problems.
“It will be essential for the government to take the necessary reform measures, including the removal of gasoline/diesel subsidies, measures to curb imports and improve tax collection. This will pave the way for the resumption of the program of the IMF which currently remains at a standstill and will lead to flows of dollars which could ease the pressure on foreign exchange and currency reserves in the future,” the analyst noted.
Inflation is expected to rise further in the coming months. The rupee has lost 9.8% over the past two months, breaking through the 200 to the dollar level on Friday. With less than two months of import cover and delays in the IMF bailout, the rupiah came under significant pressure.
Weakening rupiah along with record fiscal slippages are expected to push consumer price index (CPI) inflation to 15-16%, arguing for at least a 100 bp hike interest rate base.
“This is on top of the 525 basis point increase in the policy rate already taken by the SBP since September 2021,” another analyst said.
Data released by the Pakistan Bureau of Statistics two weeks ago showed that CPI inflation hit a two-year high of 13.37% in April 2022, compared to the same month a year ago. , and was 1.6% higher than the previous month. The SBP expects inflation to average between 9 and 11 percent this fiscal year.