SBP likely to hike policy rate by 200bps to 22%

April 04, 2023 (MLN): The State Bank of Pakistan (SBP) will likely hike the policy rate by around 200 basis points (bps) to 22% in today’s Monetary Policy Committee (MPC) meeting to tame inflation, ahead of the revival of the International Monetary Fund (IMF) loan program, according to the latest poll conducted by MG Link News.

This move is likely to have an immediate impact on interest rates and borrowing costs for businesses and individuals.

Experts are divided on the tightening spree, with some praising the central bank’s proactive approach to controlling inflation and stabilizing the economy, while others are concerned about the potential impact on borrowing costs and economic growth.

In the last MPC meeting in March 2023, raise the policy rate by 300 bps to 20% with the aim of containing the impact of elevated domestic inflationary pressure, so as to embark on a path of sustainable recovery.

It is important to note that Pakistan is currently experiencing one of the most intense and aggressive rate hike cycles in over three decades! In just 18 months, the SBP has hiked rates by a whopping 1300 basis points, making it a period of monetary tightening unlike any other in recent history.

Inflation hit 35.4% in March 2023, the highest since 1965 fueled by rising commodity prices, a weakening currency, and depleting foreign exchange reserves.

Such runaway inflation along with sharp currency devaluation has raised the risk of is a serious cause for concern, and the authorities must act fast to stabilize the economy.

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