Pakistan's central bank on Thursday (March 2) hiked key policy rate by 300 basis points. The rate was hiked to 20 per cent, the highest in last 26 years. The cash-strapped South Asian country is scrambling to fulfil another demand by International Monetary Fund (IMF) for release of USD 1.1 billion tranche which is aimed at preventing an economic meltdown.

Pakistani rupee is in a freefall mode. On Thursday, it touched a historic low of 285.09 against US Dollar.

The country is taking various steps to get aid from the global lender under a USD 7 billion loan facility, which the International Monetary Fund (IMF) is refusing unless crucial decisions are made by the government and implemented.

The policy rate hike is 100 basis points higher than the financial market consensus of 200 basis points.

In its Monetary Policy Statement, the State Bank of Pakistan said that it had revised its inflation projection to 27-29 per cent for the current fiscal year.

In its meeting in Karachi, the Monetary Policy Committee (MPC) noted that the recent fiscal adjustments and exchange rate depreciation led to a significant deterioration in the near-term inflation outlook and a further upward drift in inflation expectations, as reflected in the latest wave of surveys.

The committee expects a further rise in inflation in the next few months as the impact of these adjustments unfolds before inflation begins to decrease, albeit at a gradual pace.

During its last meeting in January, the MPC highlighted near-term risks to the inflation outlook from external and fiscal adjustments. Most of these risks have materialised and are partially reflected in the inflation numbers for February.

"The national CPI inflation has surged to 31.5 per cent year-on-year, while core inflation rose to 17.1 per cent in urban and 21.5 per cent in the rural basket in February 2023," it said.

(With inputs from agencies)

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Pakistan's central bank on Thursday (March 2) hiked key policy rate by 300 basis points. The rate was hiked to 20 per cent, the highest in last 26 years. The cash-strapped South Asian country is scrambling to fulfil another demand by International Monetary Fund (IMF) for release of USD 1.

Pakistan's central bank on Thursday (March 2) hiked key policy rate by 300 basis points. The rate was hiked to 20 per cent, the highest in last 26 years. The cash-strapped South Asian country is scrambling to fulfil another demand by International Monetary Fund (IMF) for release of USD 1.1 billion tranche which is aimed at preventing an economic meltdown. Pakistani rupee is in a freefall mode. On Thursday, it touched a historic low of 285.09 against US Dollar. The country is taking various steps to get aid from the global lender under a USD 7 billion loan facility, which the International Monetary Fund (IMF) is refusing unless crucial decisions are made by the government and implemented. The policy rate hike is 100 basis points higher than the financial market consensus of 200 basis points. In its Monetary Policy Statement, the State Bank of Pakistan said that it had revised its inflation projection to 27-29 per cent for the current fiscal year. In its meeting in Karachi, the Monetary Policy Committee (MPC) noted that the recent fiscal adjustments and exchange rate depreciation led to a significant deterioration in the near-term inflation outlook and a further upward drift in inflation expectations, as reflected in the latest wave of surveys. The committee expects a further rise in inflation in the next few months as the impact of these adjustments unfolds before inflation begins to decrease, albeit at a gradual pace. During its last meeting in January, the MPC highlighted near-term risks to the inflation outlook from external and fiscal adjustments. Most of these risks have materialised and are partially reflected in the inflation numbers for February. "The national CPI inflation has surged to 31.5 per cent year-on-year, while core inflation rose to 17.1 per cent in urban and 21.5 per cent in the rural basket in February 2023," it said. (With inputs from agencies) You can now write for wionews.com and be a part of the community. Share your stories and opinions with us here. WATCH WION LIVE HERE ×

Pakistan: Central bank hikes policy rate by 300 basis points

The <a href="https://www.wionews.com/business-economy/reserve-bank-of-india-board-approves-rs-28000-crore-interim-dividend-to-government-198155">Reserve Bank of India (RBI)</a>&nbsp;is likely to cut its policy interest rate by 25 basis points on Thursday, despite some analysts believing the country's weakening economic growth and subdued inflation outlook warrant a larger reduction.

The RBI's six-member monetary policy committee (MPC) began its three-day review on Tuesday, and most analysts expected it to take a cautious approach given uncertainty over who will lead the government after the coming election and what their fiscal policy will be.

Campaigning for votes, political parties have been promising dole-outs including direct cash payments to poor people if they win power, stoking potential inflation fears.

The inflation outlook could also be upset by the perennial risk of sharply higher food prices if the monsoon season rains disappoint.

With that in mind, more than 85 per cent of the nearly 70 economists polled by Reuters expected the RBI to cut its benchmark lending rate, the repo rate, by 25 basis points to 6.00 per cent on April 4.

Yet, India's debt market appears to have priced in a 50 basis-point cut.

Trading at 5.90 per cent, the one-year interest rate swap works out at 5.75 per cent on a daily basis, putting it 50 basis points below the current repo rate, according to rate derivative dealers.

"I think the RBI will be more cautious than what the market is expecting," said Abheek Barua, chief economist at HDFC Bank in New Delhi.

"We haven't fallen off the cliff yet for a 50 basis point cut," he said.

Whereas Prime Minister Narendra Modi's administration clashed with the RBI's previous leadership on several issues including rate cuts last year, relations improved after the government appointed Governor Shaktikanta Das in December.

Officials with knowledge of the government's thinking on monetary policy said there was no pressure on the RBI to make a sharper rate cut at this time, despite economic growth weakening to 6.6 per cent in December quarter, its slowest in five quarters, and the unemployment rate hitting a multi-decade high.

"The mandate of the MPC is to focus on inflation and if inflation is below the target it should cut the rate," said an official privy to policy discussions.

"Ideally there is a scope for 50 basis point cut now, but one has to be careful of any upside risks to inflation as well," the official added.

Annual retail inflation was just 2.57 per cent in February following five months of deflation in food prices, and the RBI has projected a rise to 3.9 per cent by the end of December. But that could change quickly if the monsoon fails or global oil prices surge.

"We do not expect a drastic cut from the RBI, a calibrated approach would be our expectation, 25 basis points (bps) is more likely in our view. But, that is a call RBI has to take," said a second government official.

The MPC could be reluctant to make a deeper cut in any case, as banks only reduced their lending rates by a token 5-10 basis points after the RBI's last 25 bps cut in February.

"Savings growth has come down sharply and every bank is competing with another to attract depositors," said a top banker at a very large state bank in India.

"Under such circumstance, we won't be able to lower deposit rates, and in that case, there is no room to cut lending rates," he said, declining to be named due to sensitivity over relations with the central bank.

The Reserve Bank of India (RBI) is likely to cut its policy interest rate by 25 basis points on Thursday, despite some analysts believing the country's weakening economic growth and subdued inflation outlook warrant a larger reduction.

The Reserve Bank of India (RBI) is likely to cut its policy interest rate by 25 basis points on Thursday, despite some analysts believing the country's weakening economic growth and subdued inflation outlook warrant a larger reduction. The RBI's six-member monetary policy committee (MPC) began its three-day review on Tuesday, and most analysts expected it to take a cautious approach given uncertainty over who will lead the government after the coming election and what their fiscal policy will be. Campaigning for votes, political parties have been promising dole-outs including direct cash payments to poor people if they win power, stoking potential inflation fears. The inflation outlook could also be upset by the perennial risk of sharply higher food prices if the monsoon season rains disappoint. With that in mind, more than 85 per cent of the nearly 70 economists polled by Reuters expected the RBI to cut its benchmark lending rate, the repo rate, by 25 basis points to 6.00 per cent on April 4. Yet, India's debt market appears to have priced in a 50 basis-point cut. Trading at 5.90 per cent, the one-year interest rate swap works out at 5.75 per cent on a daily basis, putting it 50 basis points below the current repo rate, according to rate derivative dealers. "I think the RBI will be more cautious than what the market is expecting," said Abheek Barua, chief economist at HDFC Bank in New Delhi. "We haven't fallen off the cliff yet for a 50 basis point cut," he said. Whereas Prime Minister Narendra Modi's administration clashed with the RBI's previous leadership on several issues including rate cuts last year, relations improved after the government appointed Governor Shaktikanta Das in December. Officials with knowledge of the government's thinking on monetary policy said there was no pressure on the RBI to make a sharper rate cut at this time, despite economic growth weakening to 6.6 per cent in December quarter, its slowest in five quarters, and the unemployment rate hitting a multi-decade high. "The mandate of the MPC is to focus on inflation and if inflation is below the target it should cut the rate," said an official privy to policy discussions. "Ideally there is a scope for 50 basis point cut now, but one has to be careful of any upside risks to inflation as well," the official added. Annual retail inflation was just 2.57 per cent in February following five months of deflation in food prices, and the RBI has projected a rise to 3.9 per cent by the end of December. But that could change quickly if the monsoon fails or global oil prices surge. "We do not expect a drastic cut from the RBI, a calibrated approach would be our expectation, 25 basis points (bps) is more likely in our view. But, that is a call RBI has to take," said a second government official. The MPC could be reluctant to make a deeper cut in any case, as banks only reduced their lending rates by a token 5-10 basis points after the RBI's last 25 bps cut in February. "Savings growth has come down sharply and every bank is competing with another to attract depositors," said a top banker at a very large state bank in India. "Under such circumstance, we won't be able to lower deposit rates, and in that case, there is no room to cut lending rates," he said, declining to be named due to sensitivity over relations with the central bank.

Reserve Bank of India likely to cut interest rate by 0.25%: Analysts

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