The State Bank of Pakistan is scheduled to announce its monetary policy on May 23, 2022. The experts expect SBP to increase the policy rate by 1.0% to 13.25% from 12.25% today. Or some think, an increase of 50bps. Or it may be on the higher side.

Analysts believe the SBP is evaluating the impact of higher commodities prices, mainly energy and food items, on the economy, fueling inflation. On a forward-looking basis, the current real interest rates are not appropriate for curtailing demand, thus inflation and maintaining external stability.

Pakistan is currently facing tough economic times as depleting foreign exchange reserves, rising fiscal deficit amid huge petrol/diesel subsidy, and indecisiveness by the new government on key financial measures are exacerbating economic issues.

It will be key for the government to take the required reform steps, including removing subsidy on petrol/diesel, measures to curb imports & improve tax collection. This will pave the way for the resumption of the IMF program, which currently remains stalled and will result in dollar flows that could ease pressure on the currency and foreign exchange reserves.

Courtesy- Spectrum Research’ and Topline Securities