ISLAMABAD: Pakistan’s central bank is scheduled to announce its new monetary policy today, Monday, as Islamabad grapples with influenced by globally high oil prices due to the Iran war.
The central bank’s Monetary Policy Committee (MPC) will hold its fourth meeting of the year on Monday to announce the new policy rate. In its last meeting on Apr. 27, the central bank raised the policy rate by 100 basis points (bps) in line with market expectations.
That hike was brought about by surging tensions in the Middle East, as direct negotiations between the US and Iran failed to achieve a breakthrough in Islamabad. As the US-Iran conflict in the Middle East continued and Iran maintained a chokehold on the Strait of Hormuz maritime trade route, global oil prices surged higher.
Brokerage firm Topline Securities noted in its report last week that market expectations this time remain divided on whether the SBP will hike the interest rate or maintain the status quo.
“Amid relatively stable Middle East tensions compared to the previous MPC, market expectations are largely split between a status quo and a rate hike,” the report said.
Topline Securities conducted a poll in which 49 percent of the respondents said they expect the policy rate to remain unchanged after the MPC meeting, while another 49 percent said they anticipate an increase.
Out of these, 34 percent said they expect a hike of 50bps, while 15 percent said they forecast a 100bps hike. Only two percent said they expect a decline in the policy rate by up to 50bps.
The report said uncertainty over whether Pakistan will hike the interest rate or not is primarily driven by high volatility in oil prices.
Tensions between the US and Iran eased early Monday as Prime Minister Shehbaz Sharif and US President Donald Trump separately announced that the US and Iran have agreed to a peace deal. Sharif said the peace deal will be signed in Switzerland on Friday, bringing an end to the months-long conflict that drove prices of oil and food higher in several countries.
Pakistan’s move to increase its policy rate by 100bps to 11.5 percent in April was its first hike in almost three years. As the US-Iran war kept oil prices higher and triggered supply shocks, the SBP said it had decided to maintain a tighter policy stance to keep inflation expectations anchored.
