- Inflation and the current account situation seem manageable, according to an analyst.
- Analysts believe monetary policy will be tightened after January 2022.
- SBP would continue to hold its key rate as it must balance the negative impact of COVID-19 with lower interest rates, another expert said.
- FPCCI president says key interest rate should not exceed 6%
KARACHI: Despite the rupee’s record high, the State Bank of Pakistan (SBP) is expected to keep its policy rate unchanged next week, analysts say.
According to a report published in The news, the central bank is expected to start monetary tightening by the first quarter of next year.
The SBP’s Monetary Policy Committee (MPC) kept the policy rate at 7% in July to support the economic recovery. The MPC is expected to announce its monetary policy decision on September 20.
Pak-Kuwait Investment Company head of research Samiullah Tariq said: “In my opinion, SBP would continue to hold its key rate as it needs to balance the negative impact of COVID-19 with lower interest rates. . “
“I think monetary policy will be tightened after January 2022.” The government’s pro-growth policies are seen as a major consideration for the MPC to maintain the policy rate this year. At the same time, however, growing inflationary pressures and the widening current account deficit are also putting increasing pressure on the MPC to hike rates as soon as possible.
“We are not expecting any change in interest rates. Inflation and the current account situation appear to be manageable, ”said Mustafa Mustansir, head of research at Taurus Securities. “The visible signs of pressure on the demand side are still quite weak.”
Mustansir said falling interest rates are good for growth and “growth is the government’s priority at this point.” In its latest forward guidance, the MPC said it expects monetary policy to remain accommodative in the near term, and any policy rate adjustments to be measured and gradual to achieve slightly positive real interest rates over time. time.
If signs appear of demand-induced inflationary pressures or current account vulnerabilities, the MPC noted that it would be prudent for monetary policy to begin to normalize through a gradual reduction in the degree of accommodation, he said. added.
A survey conducted by brokerage Topline Research showed that most financial market participants expect a status quo in September policy. About 65% of respondents do not expect any change in the key rate in the next monetary policy statement, compared to 89% in the previous poll, he said.
Almost 25% of participants expect a 25 basis point (bps) increase in the policy rate, while 10% of participants expect an increase of 50 bps or more. None of the participants expected a cut in the key rate, according to the poll.
“We expect a 25bp hike in the policy rate in September 2021 MPS, given recent current account vulnerabilities, SPI higher than expected [sensitive price index] readings suggesting no disappointment in the CPI [consumer price index] inflation and the start of talks with the IMF on resuming the program, ”said a Topline Securities analyst.
Another monetary policy survey conducted by the Policy Research Unit (PRU), the Policy Advisory Board of the Federation of Pakistan Chamber of Commerce and Industry (FPCCI) recommended a cut in the policy rate from 50 to 100 percentage points. basic.
The results of the survey showed that 84% of businessmen and researchers suggest that there should be no increase in the key rate and almost half of them suggest a decrease between 50 and 100 basis points.
The policy brief released on that occasion noted with a sigh of relief that core inflation in Pakistan – the most definitive indicator for setting the policy rate in place for any central bank – has significantly increased. declined to 6.3% in August, from 6.9% in August. the preceding month.
Mian Nasser Hyatt Maggo, chairman of the FPCCI, said the key interest rate should not exceed 6% and that if the SBP is to promote business activities and economic growth in the country, it should be lowered to 5%. . He also pointed out that the interest rate in the region is only 3-4% and that we have to compete with the region.