SBP expected to raise its policy rate by up to 200bps in early April.

KARACHI -- Despite government's claims that all prior conditions of the IMF have been met except foreign exchange reserves, the central bank is expected to raise the interest rates by up to 200 basis points in its next monetary policy meeting, analysts and financial sector experts said on Saturday.

The clear indication was given in the latest treasury bill auction, held on March 22, when the yields on the short-term government certificates rose to almost 22 per cent.

In the first week of March, the State Bank of Pakistan (SBP) increased the interest rate by 300 bps to 20pc. Days before that massive hike in the interest rate, the government had already increased the treasury bill rates to around 20pc.

'The fact that the Ministry of Finance has increased cut-off yields implies an increase in the policy rate. This signifies that the IMF deal is still alive and kicking,' said Faisal Mamsa, CEO of Tresmark, a local financial data portal.

The SBP's next monetary policy meeting is scheduled for April 4.

In the latest treasury bill auction, cut-off yields on three-, six-, and 12-month certificates were increased by 100bps, 114bps and 50bps, respectively. Based on these cut-off yields, market participants expect interest rates to be increased by another 200bps.

Analysts in the financial sector believe that a further hike in the interest rate could be a need for the government since inflation has gone out of control. The main inflation jumped to 31.5 per cent in February, reflecting that the measures taken by the State Bank and the government have failed to tame rising pace of price rises.

'I believe an increase of two percentage points in the interest rate is expected in the upcoming monetary policy,' said Samiullah Tariq, head of research at Pak-Kuwait Investment and Development Company.

March's inflation reading was expected to be around 34pc, he said, adding: 'So, the gap between the inflation and interest rates is too wide.'

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