Market Participants' Views and Macro Estimates for the upcoming Monetary Policy Announcement on January 23, 2023, were surveyed by Topline Research in a recent poll that reveals that the market expects the policy rate to increase in 2023.



74% of respondents anticipate a policy rate increase between 100 and 200 basis points, with 37% anticipating a 100 basis point increase, 18% anticipating a 150 basis point increase, and 19% anticipating up to a 200 basis point increase. Additionally, only 2% anticipate a rate cut, while 18% anticipate no change and 5% anticipate a 50bps increase.


Consumer Price Index (CPI) inflation has increased to 24.5% in December 2022, up from 23.8% in November 2022, following the most recent monetary policy statement on November 25, 2022. In December 2022, urban core inflation (excluding food and energy) remained at 14.7%, while rural core inflation rose to 19.0% from 18.5% in November.


Short-term inflation is expected to remain high due to supply-side disruptions and recent food price increases. In the fiscal year 2023, the State Bank of Pakistan (SBP) projects an average inflation rate of 21-23%, while Topline Research projects 26%.



Foreign exchange reserves have decreased to $4.3 billion, a $3.1 billion decrease from November 25, 2022, making them barely sufficient to cover one month's worth of imports. As a result, external challenges continue to grow.


This is because there are a lot of debt repayments and foreign inflows are slowing down. The State Bank of Pakistan (SBP) raised concerns in its most recent monetary policy statement about declining foreign flows as a result of domestic political uncertainty and a tightening global situation amid rising global interest rates.



The upcoming monetary policy, according to Topline Research, will see a 100-basis-point increase in the policy rate. However, further rate increases cannot be ignored if inflation and external issues persist.


The majority of participants expected the PKR/USD exchange rate to range from 240 to 260 in June 2023. It is anticipated to be around Rs. 260-270, and 11% anticipate it to be higher than Rs. 270. In contrast, 11% anticipate it to be in the Rs range. 230-240, and only 3% anticipate it being around Rs. 220-230.