Pakistan’s central bank is anticipated to maintain its key interest rate for the fourth consecutive policy meeting on Tuesday, as analysts project a steady rate to pave the way for future cuts.
Despite facing economic challenges and conditions set by the International Monetary Fund (IMF), Pakistan has navigated a path to recovery under a caretaker government, supported by a $3 billion IMF loan approved in July. The key interest rate, raised to a historic 22% in June, has remained unchanged in the last three meetings.
A Reuters poll of 12 analysts forecasts no rate change on Tuesday, with one analyst suggesting a 100 basis point cut. The consensus in the market suggests a gradual easing of rates in the first half of the next year, contingent on the inflation trajectory. Inflation remains a concern, with November’s 2.7% month-on-month increase attributed to rising gas prices. However, annual inflation is expected to start decreasing from February 2024, according to Usman Zahid, Director of Research at AKD Securities.
Annual inflation stood at 29.2% in November, a slight uptick from October but significantly below the peak of 38% in May, as reported by the Pakistan Bureau of Statistics. Investors have factored in a peak in Pakistan’s interest rates, and the optimism surrounding the expected successful completion of the IMF program has boosted stock markets and the currency. The benchmark index surpassed 66,000 points, reaching an all-time high with the highest weekly return of 7.3% in the week ending December 8.
Mohammad Sohail, CEO of Topline Securities, believes that a stable currency, a low current account deficit, and a projected decline in inflation in the coming months could persuade the committee to consider a downward adjustment in rates, potentially by 100 basis points on Tuesday itself.
