KARACHI: The State Bank of Pakistan (SBP) is expected to keep the key policy rate unchanged at 22 percent in its upcoming monetary policy committee (MPC) meeting on Monday on the back of high inflation, according to a survey report by a top brokerage firm.
Monday’s policy meeting will be the last ahead of general elections scheduled for Feb. 8.
“We believe the SBP will keep the policy rate unchanged at 22% in the upcoming MPC meeting due to a lower-than-expected fall in inflation,” said Muhammad Sohail, CEO of Topline Securities, which conducted the survey.
The survey shows 68% of participants expect the policy rate to remain unchanged at 22%, while the remaining 32% anticipate a rate cut. Among those expecting a cut, 5% foresee a reduction of 25 basic points (bps), 18% expect a cut of 50bps, 5% anticipate a cut of 100bps, and 4% say it will decrease by more than 100bps. No participants expect an increase in interest rates.
Some analysts said the central bank would cut the rate by at least 50bps due to recent interest rate cuts in Treasury bills (T-Bills).
“Though overwhelming majority is expecting that the policy rate will remain unchanged but I think the central bank may cut 50bps on the back of recent rate cuts in T-Bill and Sukuk auctions,” Shahid Ali Habib, CEO of Arif Habib Limited, told Arab News on Friday, saying the central bank would definitely reduce the policy rate in March 2024 on expectations that inflation numbers would be down by then.
In its previous meeting in December 2023, the central bank had decided to keep the policy rate unchanged at 22%. The upcoming unchanged stance would thus be the fifth in a row.
However, the bank would likely consider a rise in inflation for December 2023 to 29.7% from 29.2% in November 2023, due to, among other factors, a decrease in fuel prices and a Current Account Surplus of $397 million in December 2023 as compared to a Current Account Deficit of $15 million in November 2023.
The monetary policy meeting comes after the country has availed $700 million released under a $3 billion Standby Arrangement (SBA) bailout approved by the International Monetary Fund (IMF) last year.
The IMF expects the Pakistani economy to grow by 2 percent during the current fiscal year, FY24, on the back of improving macroeconomic conditions as nascent recovery expands in the second half of the year.
Pakistan’s GDP contracted by 0.2 percent in FY23, slightly less than expected, due to the impact of 2022 floods and difficult external conditions fueled by uneven policies during the year, according to the IMF.
“Inflation remains high, affecting particularly the more vulnerable, and it is appropriate that the SBP maintains a tight stance to ensure that inflation returns to more moderate levels,” the IMF said in a statement last week.
