Islamabad: As tensions in the Middle East remain, financial market participants remain divided on whether the central bank will hike its benchmark interest rate or not in an upcoming meeting, the findings of a survey by brokerage firm Topline Securities said on Tuesday.
The State Bank of Pakistan (SBP) will hold this year’s fourth Monetary Policy Committee (MPC) meeting on Jun. 15. In its last meeting on Apr. 27, the central bank raised the policy rate by 100 basis points (bps) in line with market expectations.
The hike came as surging oil prices from the US-Iran war threatened to push inflation higher in Pakistan. Topline Securities noted that market expectations this time are “largely split” on whether the SBP will hike the interest rate or maintain the status quo, as fighting between the US and Iran has relatively reduced and both explore the possibility of peace.
“Amid relatively stable Middle East tensions compared to the previous MPC, market expectations are largely split between a status quo and a rate hike,” the report said.
Topline Securities said it conducted a poll in which 49 percent of the respondents said they expect the policy rate to remain unchanged after the MPC meeting, while another 49 percent said they anticipate an increase.
Out of these, 34 percent said they expect a hike of 50bps, while 15 percent said they forecast a 100bps hike. Only two percent said they expect a decline in the policy rate by up to 50bps.
The report said uncertainty over whether Pakistan will hike the interest rate or not is primarily driven by high volatility in oil prices.
Topline said it expected the central bank to keep the policy rate unchanged, observing that repeated assurances by US President Donald Trump to end the war early have kept Brent oil prices below $100 per barrel since the last two weeks.
Pakistan’s move to increase its policy rate by 100bps to 11.5 percent in April was its first hike in almost three years. As the US-Iran war kept oil prices higher and triggered supply shocks, the SBP said it had decided to maintain a tighter policy stance to keep inflation expectations anchored.
