The State Bank of Pakistan (SBP) is set to raise interest rates as early as this week in an off-cycle review, investors said, as the country faces pressure to mend its finances amid a $1 billion loan it is seeking from the International Monetary Fund.

Market participants in a recent treasury bill auction are expecting at least a 200 basis points increase in the central bank’s policy rate, which stands at 17 per cent. The expected increase is based on the rates the government set in the auction to raise the funds.

The government raised Rs258 billion in the auction on Wednesday. The cut-off rates for the three-month, six-month, and 12-month tenors jumped 195 bps, 206 bps, and 184 bps higher than the previous auction.

The cash-strapped country is undertaking key measures to secure IMF funding, including raising taxes, removing blanket subsidies, and artificial curbs on the exchange rate. While the government expects a deal with IMF soon, media reports say that the agency expects the policy rate to be increased.

The next meeting of the central bank’s Monetary Policy Committee is scheduled for March 16. Off-cycle rate reviews are not uncommon though.

Assistant Vice President of Research at Pak Kuwait Investment Company, Adnan Sheikh, said that a rate hike is imminent, and it could be as soon as Friday.

“The next policy meeting is too far. Given the circumstances, it’s already being priced in,” Sheikh said.

The SBP and the IMF did not immediately respond to requests for comment.

Head of Research at Ismail Iqbal Securities, Fahad Rauf, said that the IMF has given a target to at least keep rates higher than core inflation. Pakistan has two core inflation readings i.e., Urban (15.4pc for Jan) and Rural (19.4pc) and no national core number is released. If the SBP tries to bring rates above rural core inflation, it requires a rate hike of 200-300 bps, he said.

Mohammad Ayub Khuhro, a fund manager at a local fund, said that recent economic data on government finances suggest that it was running low on its cash balances held with the central bank.

This is why the government went ahead with picking up their desired targets despite a signalling effect it would send to the markets, Khuhro said.

The government has effectively bypassed the central bank in order to fulfill IMF conditions by accepting a higher cut-off, he added.

Opinion

Editorial

Surveillance state
Updated 04 Jun, 2023

Surveillance state

IN the midst of the madness, finally some sanity. Questions critical to the right to privacy of citizens bombarded ...
Transport crisis
04 Jun, 2023

Transport crisis

LIKE many other public-sector projects, governments past and present have promised numerous times to ‘revive’ ...
The Buzdar mystery
04 Jun, 2023

The Buzdar mystery

THE departure of former Punjab Chief Minister Usman Buzdar from politics is not really surprising as the PTI is...
New IMF programme?
Updated 03 Jun, 2023

New IMF programme?

The tranche’s release is crucial to the government’s plans to provide relief to the public in the budget.
Pemra’s edict
03 Jun, 2023

Pemra’s edict

IN an effort to mould the narrative, and prevent “undesirable” opinions from making it to the airwaves, Pemra ...
Crypto dreams
03 Jun, 2023

Crypto dreams

THOUGH the majority of the global financial community has wholeheartedly embraced the promise of cryptocurrencies,...