Pakistan to leave 21 percent policy rate unchanged amid high inflation -analysts

A foreign currency dealer counts currency bills at a shop in Karachi on February 25, 2022. (AFP/File)
Short Url
Updated 08 June 2023
Follow

Pakistan to leave 21 percent policy rate unchanged amid high inflation -analysts

  • Pakistan’s key rate has been raised by a massive 1125 basis points (bps) since April of last year 
  • Most analysts say there would be no change in key rate next week, while one expects a 100 bps hike

KARACHI: Pakistan’s central bank is widely expected to keep its key interest rate unchanged at 21 percent on Monday after aggressive rate hikes since April last year to tackle record-high inflation amid the nation’s worst-ever economic crisis. 
The country’s key rate has been raised by a massive 1125 basis points (bps) since April 2022 and 17 of 18 analysts surveyed said there would be no change in the key rate on Monday, while one expects a 100 bps hike. 

“They’ll point to a ‘plateauing of inflation’ as evidence that rates don’t need to go up,” said Uzair Younus, Director of the Pakistan Initiative at the Atlantic Council’s South Asia Center. 

Most analysts agreed that with inflation peaking and global commodity prices coming down, there was no urgent need to hike interest rates yet again. Inflation surged to 37.97 percent in May, a record high for the second month in a row, and the highest in South Asia, ahead of Sri Lanka, which posted annual inflation of 25.2 percent in May. 

“The inflation readings are expected to fall due to high base effect,” said Fahad Rauf, head of research at Ismail Iqbal Securities. “We expect 30 percent inflation for June 2023 vs 38 percent in May. GDP growth was meager 0.3 percent, which would probably be revised to negative once the final/revised GDP numbers are released next year,” he added. 

But Shivaan Tandon, an economist at Capital Economics, expects a 100 bps hike, saying the central bank cannot afford the luxury of keeping the policy rate on hold given the need to tame record-high inflation and support the currency through monetary tightening. 

“Rate hikes may also prove to be a signal to potential creditors about the authorities’ commitment toward resolving external imbalances,” he said.

The policy decision will follow the annual budget that will be presented to parliament on Friday. The government will hope to strike a balance between reforms to satisfy the International Monetary Fund (IMF) and measures to win over voters in an imminent election due by November. 

The cash-strapped country, with reserves to barely meet a month’s worth of imports, is undertaking steps to secure a $1.1 billion loan, part of a $6.5 billion IMF bailout package. These measures include raising taxes and removing blanket subsidies and artificial curbs on the exchange rate.


Thousands of Afghans displaced by Kabul-Islamabad conflict

Updated 5 sec ago
Follow

Thousands of Afghans displaced by Kabul-Islamabad conflict

  • The neighbors have clashed since Thursday when Afghanistan launched a border offensive in retaliation for Pakistani air strikes
  • Islamabad has hit back along the border and with fresh air strikes, bombing multiple sites including the former US air base at Bagram

KABUL: More than 8,000 Afghans have been forced from their homes by fighting with Pakistani forces along the border in recent days, the Taliban government said Tuesday.

The neighbors have clashed along the frontier since Thursday, when Afghanistan launched a border offensive in retaliation for Pakistani air strikes.

Islamabad has hit back along the border and with fresh air strikes, bombing multiple sites including the former US air base at Bagram, the capital Kabul and the southern city of Kandahar.

“Due to these brutal bombings and attacks, 8,400 of our families have been displaced, forced to leave their villages and homes,” Afghan deputy government spokesman Hamdullah Fitrat said at a news conference.

An AFP journalist near the frontier has spoken to residents who have fled the clashes.

Afghanistan’s defense ministry reported “extensive and heavy offensive and revenge attacks” across seven provinces over the past day.

The government acknowledged earlier air strikes on Bagram for the first time.

“Yes, the enemy targeted Bagram as well, but there were no casualties or damage,” defense ministry spokesman Enayatullah Khowarazmi said.

Two residents told AFP on Sunday that they heard air strikes in Bagram, north of the capital.

Pakistani security sources said strikes at Bagram were based on “credible intelligence” to disrupt the “supply of critical equipment and stores” for Afghan soldiers and militants fighting Pakistan forces along the frontier.

They said Pakistan reserves the right to respond to the Taliban government’s “aggression along its border by striking legitimate targets at the time and place of its own choice.”

Pakistani fighter jets also flew nighttime sorties over Kabul, another security source told AFP.

UN ‘ALARMED’
Islamabad’s confirmation that its aircraft flew over the Afghan capital came hours after AFP journalists in the city heard multiple explosions.

The blasts were heard alongside anti-aircraft weapons and gunfire from across the city.

An AFP journalist in Jalalabad city, between Kabul and the frontier, reported hearing explosions and various weapons being fired.

At the nearest border crossing, around 50 kilometers (30 miles) from Jalalabad, residents in Torkham told AFP the days-long fighting was ongoing.

The latest casualties include three children killed in a “crime committed by the Pakistani military regime” in Kunar province, Fitrat said Monday.

At least 39 civilians have been killed since Thursday, the Afghan government said, a toll which Pakistan has not commented on.

The UN children’s charity said it was “alarmed” by reports of child casualties in the conflict, and called on all sides to “exercise maximum restraint, protect civilian lives.”

Pakistan said its February air strikes that sparked the escalation were targeting militants.

Islamabad accuses Afghanistan of failing to act against militant groups that carry out attacks in Pakistan, which the Taliban government rejects.

Pakistan’s Foreign Minister Ishaq Dar said on Tuesday it was “never too late to talk,” but warned: “We will finish this menace.”

The Afghan defense ministry spokesman said more than 25 soldiers have been killed, while estimating Pakistani fatalities among troops at around 150.

Pakistan says more than 430 Afghan soldiers have been killed, with more than 630 wounded.

Casualty claims from both sides are difficult to verify independently.

The violence of recent days is the worst since October fighting killed more than 70 people on both sides, with land borders between the neighbors largely shut since.