Pakistan’s central bank is widely expected to hold its key interest rate at a record 22% for the seventh straight policy meeting on Monday as Pakistan gears up for an International Monetary Fund board approval and talks on a longer term programme.

Monday’s policy decision will be followed by the fund’s executive board meeting to discuss the approval of $1.1 billion in funding for Pakistan, which is the last tranche of a $3 billion standby arrangement with the IMF secured last summer to avert a sovereign default.

The median estimate in a Reuters poll of 14 analysts predicts the State Bank of Pakistan (SBP) will hold rates steady.

Four analysts are forecasting a 100-basis-point (bps) cut, while two expect a 50-bps cut on Monday.

Eight respondents expect a rate cut before Pakistan signs a new programme with the IMF. There is another MPC meeting on 10 June 2024, which is possibly before Pakistan gets another IMF Programme.

The South Asian nation is seeking a new long-term, larger IMF loan. Pakistan’s Finance Minister, Muhammad Aurangzeb, has said Islamabad will begin talks with the fund next month, and could secure a staff-level agreement on the new program by early July.

Pakistan’s key rate was last raised in June to fight persistent inflationary pressures and to meet one of the conditions set by the IMF for securing the bailout.

Pakistan’s Consumer Price Index (CPI) for March rose 20.7% from the year before, slowing down partly due to the “base effect”, touching a record high of 38% in May 2023.

Tahir Abbas, head of research at Arif Habib Limited said that the central bank is unlikely to cut rates before getting a new IMF programme. “The monetary policy will also consider the inflationary outcome of tensions in the middle east and its impact of fuel prices, along with the Fed’s delay in monetary easing,” he added.

“Expect a symbolic reduction in the current quarter (till June), with aggressive cuts to follow in the September quarter as the government has to roll over approximately 6.7 trillion rupees of maturing domestic treasury bills in the last quarter of the calendar year,” said Mustafa Pasha, CIO of Lakson Investments.

He added that by then there will be greater clarity on inflation and FX inflows. “Historically the SBP has cut rates in the 1st year of an IMF program and we expect the policy rate to settle around 17% by December.”