Pakistan: confusing signals from the central bank

The State Bank of Pakistan (SBP) today raised interest rates by a further 100bp, which came as little surprise. What was unexpected, however, was the sudden shift in tone in the statement. Despite the worsening inflation outlook and the widening external deficit, the SBP appeared to indicate it was nearing the end of its tightening cycle.  We are adjusting our rate forecast for next year to take account of the change in the central bank’s rhetoric, but there is a risk it will need to raise rates more aggressively if inflation continues to climb or if downward pressure on the rupee worsens. Note: Central Bank Drop-In – The Fed, ECB and BoE are just some of the key central bank decisions expected in this packed week of meetings. Neil Shearing and a special panel of our chief economists will sift through the outcomes on Thursday, 16th December at 11:00 ET/16:00 GMT and discuss the monetary policy outlook for 2022.