The cash-strapped country is undertaking key measures to
secure the 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.
"We support the use of monetary policy to rein in inflation,
anchor inflation expectations, and support the exchange rate,"
said Esther Perez Ruiz, the IMF's resident representative in
Pakistan, in an email.
"As such, monetary policy has an important role to play
in taming inflation and preserving the purchasing power of
Pakistanis, first and foremost the poor and most vulnerable."
The next meeting of the central bank's monetary policy committee is scheduled for March 16. Off-cycle rate reviews are not uncommon in Pakistan, though. Adnan Sheikh, assistant vice president of research at Pak Kuwait Investment Company, said 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 State Bank of Pakistan (SBP) did not immediately respond to requests for comment. "No MPC meeting has been held yet after the last meeting last month," SBP chief spokesperson Abid Qamar was quoted as saying by local business newspaper Business Recorder on Thursday. "The next MPC meeting so far scheduled is on March 16."
The IMF has given a target to at least keep rates higher than core inflation," said Fahad Rauf, head of research at Ismail Iqbal Securities. "Pakistan has two core inflation readings i.e., Urban (15.4% for Jan-23) and Rural (19.4%) 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." Mohammad Ayub Khuhro, who manages a local fund, said recent government finance data suggest that it was running low on cash balances held with the central bank. "This is why the government went ahead with picking up their desired targets despite a signaling 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. ($1 = 260.2000 Pakistani rupees) (Reporting by Ariba Shahid in Karachi; Editing by Muralikumar Anantharaman and Richard Chang)
