The State Bank of Pakistan’s (SBP) monetary policy committee is set to convene in Karachi today to deliberate on the interest rate, with expectations running high in the financial markets.
In a statement released on Monday, the central bank announced its committee’s meeting to determine the new interest rate, which has remained steady at 22% in the previous period.
While a majority of financial sector experts anticipate no change in rates, some speculate a potential 1% reduction.
Recent reports suggest that the SBP may contemplate its first rate cut since June 2020, as inflationary pressures ease and the nation’s external accounts show signs of improvement.
However, the possibility of a rate cut is balanced by the ongoing loan review discussions with the International Monetary Fund (IMF), indicating the likelihood of maintaining the current rate.
As the SBP nears its monetary policy decision on March 18, the financial markets are rife with speculation.
The central bank faces a critical decision — whether to implement the first interest rate cut in nearly four years or to maintain the status quo amidst ongoing loan reviews and discussions for a new IMF bailout.
Analysts closely monitor the SBP, anticipating a potential reversal in its interest rate policy with a 100 basis points (bps) reduction during the upcoming monetary policy meeting.
A report from brokerage Arif Habib Limited (AHL) highlights the growing anticipation of a rate cut, suggesting the initiation of an interest rate reversal cycle by slashing rates by 100 bps.
Should the SBP’s Monetary Policy Committee decide to lower the benchmark interest rate, it would mark the first rate cut since June 2020. The SBP had increased the policy rate from 7% in September 2021 to a record 22% in June 2023, reflecting a significant 15% rise during this period.
However, the decision remains challenging this time, with the market divided on the issue. The MPC may opt to maintain the status quo as Prime Minister Shahbaz Sharif seeks to negotiate a longer-term loan program with the IMF to stabilize the economy amidst high inflation and the need for external funding. Pakistan has consistently received advice from the IMF to maintain a tight monetary policy stance.
