SBP set to raise interest rates by 200 bps in bid to secure IMF loan

February 23, 2023 (MLN): The State Bank of Pakistan (SBP) is expected to raise interest rates in an off-cycle review this week, as the country seeks to repair its finances and secure a $1 billion loan from the International Monetary Fund (IMF).

According to market participants in a recent treasury bill auction, investors are anticipating a minimum 200 basis points increase in the central bank's policy rate, which is currently at 17%, as Reuters reported. 

The anticipated interest rate hike is a signal of the central bank's commitment to implementing the necessary measures to improve Pakistan's fiscal situation. The higher interest rates will make it more expensive for the government to borrow money, but will also help to curb inflation. 

In yesterday's T-bills auction, the SBP on Thursday received bids worth Rs246.74bn for 3 months, Rs50bn for 6 months, and Rs50bn for 12 months, out of which it accepted Rs151.74bn, Rs12bn, and Rs10bn, respectively. In addition, the SBP picked up Rs84.01bn from the non-competitive auction, making the total amount accepted Rs257.74bn.

This move by the SBP indicates that the central bank is adopting a hawkish stance to curb inflation, which has been steadily rising in recent months.

With the hike in policy rate expected in the near future, borrowers may face higher borrowing costs, which could negatively impact economic growth.

On the other hand, savers could benefit from higher returns on their investments.

It is important to note that further monetary tightening is one of the remaining conditions of the IMF that need to comply to unlock the IMF deal. 

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