Pakistan cenbank to keep rates on hold ahead of IMF review, Reuters poll shows

October 26, 2023 at 05:26 am EDT

KARACHI, Pakistan (Reuters) - Pakistan's central bank is largely expected to hold rates steady at a meeting on Monday, according to a majority of analysts polled by Reuters, as the country awaits its first review following a loan from the International Monetary Fund.

The South Asian nation has embarked on a difficult path to economic recovery under a caretaker government after a $3 billion loan programme was approved by the IMF in July that helped to avert a sovereign debt default, but with conditions that complicated efforts to curb inflation.

The IMF's First Review under the programme is due to begin on Nov. 2.

The median estimate in a Reuters poll of 15 analysts predicted no change in rates on Monday. Two of the 15 analysts expected a rate cut of 50 and 100 basis points each.

"(The central bank) cannot manoeuvre near-term inflation (especially from supply side) with any further rate hikes. Demand destruction has already happened," Muhammad Ali, an analyst with AKD Securities, said.

Pakistan's inflation rate rose to 31.4% on year in September from 27.4% in August, as the nation struggled with high fuel and energy prices.

Inflation has been in double digits since November 2021. The country targeted inflation at 21% for the current fiscal year, but it averaged 29% during the first quarter.

"State Bank of Pakistan is expected to hold interest rates at current levels as real rates are comfortably in a positive territory on a 12-month forward basis," Tahir Abbas, head of research at Arif Habib Ltd, said.

"Also, the IMF first review is scheduled to be held in early November, before that SBP might hold interest rates at current levels," he added.

SBP kept its key interest rate unchanged at 22% at its meeting in September, surprising analysts who had been expecting it to increase rates by at least 150 basis points.

SBP has held rates steady for two meetings in a row after raising it by 12.25 percentage points in a series of hikes since April 2022.

The Pakistani government is attempting to use fuel price cuts and a price-control mechanism to limit inflation, caretaker Prime Minister Anwaar ul Haq Kakar said earlier this month.

Worsening economic conditions, along with rising political tensions in the run-up to a national election scheduled for November, triggered sporadic protests in September, with many Pakistanis saying they are struggling to make ends meet.

For the individual poll responses, see table below:

# Organization Expectation

1 AKD Securities 0

2 Ammar Habib 0

3 Arif Habib Limited 0

4 EFG Hermes 0

5 FRIM Ventures 0

6 Ismail Iqbal Securities 0

7 JS Capital 0

8 Lakson Investment 0

9 Multiline Securities -100

10 Pak Kuwait Investment Company 0