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

Depopulating Gaza
Updated 07 Feb, 2025

Depopulating Gaza

The least feasible "solution" is the Trumpian plan for Gaza’s ethnic cleansing and occupation, which is a non-starter.
‘Pause’ in US aid
07 Feb, 2025

‘Pause’ in US aid

THE impact of the Trump administration’s decision to ‘pause’ all US foreign aid programmes, especially those...
Mobilising opposition
07 Feb, 2025

Mobilising opposition

POLITICS makes strange bedfellows. There has not, for quite some time, been a guest list as intriguing as the one...
No time left
Updated 06 Feb, 2025

No time left

Climate change concerns continue to remain a footnote as politics dominates national discourse, surfacing only when disaster strikes.
Karim Aga Khan
06 Feb, 2025

Karim Aga Khan

PRINCE Karim Aga Khan was a man who straddled various worlds and cultures. Beyond his role as spiritual leader of ...
Cotton production
06 Feb, 2025

Cotton production

PAKISTAN’S cotton crop is on the ropes. The crop output has been falling since FY15, when the country harvested a...