As tensions in the Middle East continue to influence global markets, financial participants in Pakistan remain divided on whether the central bank will raise its benchmark interest rate during its upcoming meeting, according to a survey conducted by brokerage firm Topline Securities on Tuesday.
Upcoming MPC Meeting
The State Bank of Pakistan (SBP) is scheduled to hold its fourth Monetary Policy Committee (MPC) meeting of the year on June 15. In the previous meeting held on April 27, the central bank increased the policy rate by 100 basis points (bps), aligning with market expectations. That hike was driven by surging oil prices resulting from the US-Iran conflict, which threatened to push inflation higher in Pakistan.
Topline Securities noted that market expectations this time are largely split between a rate hike and maintaining the status quo. The relative reduction in fighting between the US and Iran, along with both sides exploring possibilities for peace, has contributed to this uncertainty.
Survey Results
The brokerage firm conducted a poll in which 49 percent of respondents expect the policy rate to remain unchanged after the MPC meeting, while another 49 percent anticipate an increase. Among those expecting a hike, 34 percent forecast a 50bps increase, and 15 percent predict a 100bps hike. Only two percent of respondents expect a decline in the policy rate by up to 50bps.
The report highlighted that uncertainty over whether Pakistan will hike the interest rate is primarily driven by high volatility in oil prices. Topline Securities itself expects the central bank to keep the policy rate unchanged, noting that repeated assurances by US President Donald Trump to end the war early have kept Brent oil prices below $100 per barrel for the past two weeks.
Background
Pakistan's move to increase its policy rate by 100bps to 11.5 percent in April marked its first hike in almost three years. As the US-Iran war kept oil prices elevated and triggered supply shocks, the SBP stated it had decided to maintain a tighter policy stance to keep inflation expectations anchored.
