ISLAMABAD: A surge in global oil prices driven by the Iran war and resulting inflation in Pakistan have increased market expectations that Islamabad will hike its interest rate, the results of a survey by a brokerage firm showed ahead of the Monetary Policy Committee’s (MPC) meeting today.
According to a survey conducted by Karachi-based brokerage firm Topline Securities, 53 percent of the respondents expect the central bank to hike the interest rate. Of this 53 percent, 41.2 percent expect a 50-100 basis point (bps) hike, followed by 10 percent of the respondents who expect an increase of 25-50bps. Only 2 percent expect the interest rate to increase by more than 100bps.
Of the remaining 47 percent of the participants, 43 percent expect no change in the policy rate, while 4 percent expect the rate to decline by 50-100bps. Topline Securities noted that 92 percent of the participants were expecting interest rates to remain unchanged in its last poll, as the Iran war was still in its initial days. However, it noted that it has been almost two months since the war began on Feb. 28, with neither the US nor Iran agreeing to a peace deal.
“We also expect interest rates to increase by 50bps in the current monetary policy to absorb the impact of rising oil prices,” Topline Securities said in a report. “And its indirect/lagged impact on other commodities and to contain non-essential imports.”
Pakistan’s central bank kept its key policy rate unchanged at 10.5 percent during the last MPC meeting in March, despite surging energy prices and regional tensions. Pakistan imports most of its energy needs from the Middle East, making domestic inflation sensitive to changes in global fuel prices.
The brokerage firm said 59 percent of the respondents expect the global oil prices to remain above $80 per barrel, while 41.2 percent believe they will remain below $80 per barrel.
“On the question related to interest rate target for December 2026, 59 percent believe that policy rate will remain above 10.5 percent, 29 percent expect policy rate at 10.5 percent (current level) and 6 percent expect policy rate at 10 percent or below,” Topline Securities said.
Chase Securities, a brokerage company set up by a team of capital markets professionals, also said that market participants were divided on the interest rate outlook.
“With oil prices holding firm, inflation expectations are tilting upwards, with a likelihood of double-digit readings in the coming months,” Chase Securities said in a statement.
It noted that the MPC faces a “delicate balancing act” on whether to act preemptively by hiking the interest rate or wait for further clarity.
“A 100bps increase appears largely priced in; therefore, any decision to keep rates unchanged could trigger a positive market reaction in the short term, while a hike may be taken in stride given current expectations,” Chase Securities said.
