London August 22 2022: The State Bank of Pakistan is likely to tighten policy at its August meeting in an attempt to arrest surging inflation, according to Bloomberg Economics.
Bloomberg expect the SBP to raise its policy rate by 75 bps to 15.75%.
The results of the latest auction of three-month treasury bills on Aug. 10 suggested the market is pricing in a hike of around 75 bps.
Inflation accelerated to 24.9% year on year in July from 21.3% in June. With the government having raised retail gasoline prices again on Aug. 15, inflation is set to surpass the SBP’s forecast range of 18%-20% in fiscal 2023. We see inflation averaging 23% in fiscal 2023.
The government has said it will increase the fuel tax on gasoline to Rs. 50 per liter by January 2023 from Rs. 20. The government has committed to the IMF to lift the levy. This is likely to counter any benefits from falling global crude oil prices and might even push up inflation further.
After the expected hike in August, we see the central bank keeping its policy rate on hold through the end of this year.
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