Pakistan unexpectedly holds rates ahead of IMF loan review

Islamabad: Pakistan unexpectedly left the discount rate unchanged in a second straight meeting with expectations of a drop in consumer prices despite market expectations for prices to remain elevated.

State Bank of Pakistan Governor Jameel Ahmad said in an analyst briefing that the target rate is in line with International Monetary Fund conditions for a tighter policy ahead of a loan program review due November. Monetary policymakers raised rates by a cumulative 600 basis points since January as part of a pledge for Pakistan to clinch $3 billion in bailout loans.

The central bank maintained the target rate at 22 per cent, according to a statement on Thursday. Only four of the 41 economists surveyed by Bloomberg predicted a hold, the rest expected a hike.

The Monetary Policy Committee assessed that the tight stance, improved agriculture outlook, and recent administrative and regulatory reforms will help achieve the medium-term inflation target, the central bank said in a statement. Domestic demand will remain contained due to elevated interest rates and fiscal consolidation, it added.

The decision surprised analysts as the central bank offered more than a 25 per cent yield in a treasury bill auction last week. Pakistan’s central bank clarified that majority of the bids were not that high and closer to the previous auction. Pakistan’s benchmark stock index is down 7 per cent since its recent peak last month on fears of elevated inflation and the possibility of a rate hike.

The South Asian nation can’t afford any delays in getting funds under the program. The nation has payments of about $24.5 billion in the financial year started July and the next IMF tranche is due in December. About $11 billion of total payments will be rolled-over while inflows are estimated at $14 billion for fiscal 2024, said governor Ahmad.