IMF and State Bank of Pakistan Continue Negotiations on Increasing Interest Rate

The State Bank of Pakistan (SBP) and the International Monetary Fund (IMF) have been in discussions to further tighten monetary policy and increase foreign exchange reserves by the end of June 2023.

According to a national daily, in light of the IMF’s recommendation to increase foreign exchange reserves to $12 billion, Pakistan must get at least $17-18 billion within the next four and a half months.

IMF has even asked the SBP to increase the policy rate by 300 to 400 basis points to move towards a positive trajectory of interest rates.

The SBP has highlighted the independence of the Monetary Policy Committee (MPC), stating that decisions must be made based on macroeconomic fundamentals.

Pakistan is hoping to reach a staff-level agreement with the IMF review mission before the upcoming IMF executive board meeting in the next 4-6 weeks.

Ishaq Dar, Finance Minister, is in Dubai to seek confirmation from creditors and commercial banks to secure the required dollar support for the resumption of IMF’s program.

Speaking on the development, CEO and Founder of Topline Securities, Mohammed Sohail, said that with rising inflation, markets expect up to a 2% further increase in interest rate. 3 months T Bills reached 18.75%. In spite of high returns, Pakistan has Rs. 8 trillion in currency (outside banks) and Rs. 9 trillion in current accounts (0% return). Pakistanis are losing Rs. 3.3 trillion a year or Rs. 9 billion a day.

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