Pakistan: Monetary Policy or Mockery

State Bank of Pakistan (SBP) was scheduled to announce Monetary Policy on March 16, 2023. However, on February 28, the central bank announced to hold meeting of Monetary Policy Committee on March 02. The central bank is likely to hike the interest rate by 200 to 300 bps.

While this may have surprised some people, many say it was much anticipated. They say since SBP and Finance Ministry plan to hold a big auction on March 08, 2023. The Banks faced a few challenges, worst being lack of clarity on the interest rate.

It was feared that if the Monetary Policy is not announced before the auction, the banks will participate at much higher than the previous cutoff levels.

If the Banks participate at or around the previous cutoff levels and the SBP raises interest rates higher than the market expectations of 200bps, the carry on the T-bills will be negative as SBP will have to hold OMO at higher levels.

It appears that the Government of Pakistan is adamant at rising interest to curb inflation as per IMF mantra. However, it is necessary to say that after the proposed hike the paying interest rate for the GoP on its borrowing would become unsustainable, inflation would spike to new highs and businesses would witness further erosion in their competiveness – leading to further fall in exports.

It is also necessary to reiterate that the steps being taken on the behest of IMF would take Pakistan closer to default. One wonders, why the present economic managers have not been able to come up with their homegrown plan to pull Pakistan out of the current malice.

Failure on the part of economic managers to tax the rich, as advised by the chief of IMF, suggests that the rulers wish to prolong their ‘honeymoon’ and let the Pakistanis face all the adversaries.


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