The monetary policy committee of SBP will convene on Thursday (July 07, 2022) to announce the first scheduled monetary policy of FY23. We expect SBP to increase the policy rate by 100bps to 14.75% in the upcoming monetary policy.

To recall, in the monetary policy meeting held in May’22, the State Bank of Pakistan (SBP) increased the benchmark policy rate by 150bps to 13.75% (highest since Jun’11 – 14%). The MPC stated that it believed since the last monetary policy meeting held in Apr’22, growth projection appeared stronger than earlier estimates. Whereas risks to external stability remained elevated and the outlook for inflation deteriorated led by domestic and international factors. Therefore, this policy response is expected to help moderate demand.

Other possible measures: In addition to policy rate hike, the MPC might also take further actions to anchor inflation expectations and maintain external account stability. These include:

An increase in the interest rate on the export finance scheme (EFS) and long term financing facility (LTFF) loans and;

Implementation of linking of these rates to the policy rate, as decided in the last (May’22) MPS, and observe adjustment thereafter, while remaining below the policy rate so as to incentivize exports.

Courtesy – AHL Research