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Pakistan to hike rates in off-cycle review, investors say

Pakistan set to raise interest rates in off-cycle review, say investors © Reuters. FILE PHOTO: The logo of the State Bank of Pakistan (SBP) is pictured at the reception of its head office in Karachi, Pakistan, July 16, 2019. REUTERS/Akhtar Soomro

By: Ariba Shahid

KARACHI, Pakistan (Reuters) – Pakistan’s central bank could raise interest rates as early as this week in an out-of-cycle review, investors said, as the South Asian nation faces a fix. Fiscal pressures, while seeking a $1 billion loan from the International Monetary Fund (IMF).

Market participants at the latest Treasury bond auction expected the central bank’s policy An increase of 200 basis points to the current 17%. The expected increase is based on interest rates set by the Pakistani government at auction to boost domestic debt.

The government raised 258 billion rupees ($991.54 million) in Wednesday’s auction. Cut-off rates for 3-month, 6-month and 12-month maturities were 195 basis points, 206 basis points and 184 basis points higher than the previous auction, respectively.

The cash-strapped country is taking key steps to secure IMF funding, including raising taxes, removing a blanket subsidy and artificially capping the exchange rate. While the government is expected to reach an agreement with the IMF soon, media reports say the institution expects policy rates to increase.

“We support the use of monetary policy to contain the : “Inflation, anchoring inflation expectations and supporting the exchange rate. ”

“Monetary policy therefore plays an important role in curbing inflation and maintaining 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. However, off-cycle rate reviews are not uncommon in Pakistan.

Adnan Sheikh, assistant vice president of research at Pak Kuwait Investment Company, said a rate hike is imminent, possibly as soon as Friday.

“The next policy Meetings are too far away. Given the circumstances, it has been digested,” Sheikh said.

The State Bank of Pakistan (SBP) did not immediately respond to a request for comment. Local business newspaper the Business Recorder on Thursday. “So far, the next MPC meeting is scheduled for March 16. ”

The IMF has set a target of at least keeping interest rates above core inflation,” said Fahad Rauf, head of research at Ismail Iqbal Securities.

“Pakistan has two core inflation data, Urban (15.4% on Jan 23) and Rural (19.4%), no national core number released. If SBP Trying to keep rates above rural core inflation would require a rate hike of 200-300 basis points.”

Mohammad Ayub Khuhro, who manages a local fund, said recent government fiscal data showed that , which is running low on its cash balances held at the central bank.

It will send a signal to the market,” Khuhro said,” he added.

(1 USD=260.2000 Pakistani Rupees)



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