Market divided over upcoming monetary policy decision
- Monetary Policy Committee (MPC) of the State Bank of Pakistan is scheduled to meet on March 8
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is scheduled to meet on March 8 (Tuesday), with market analysts eagerly awaiting the next move in the backdrop of rising global escalation and growing economic challenges at the local front.
However, given the volatile situation, market participants seem to be divided over the upcoming decision regarding the key interest rate, also called the policy rate.
Brokerage house, Topline Securities, conducted a poll featuring market participants on expectations over the Monetary Policy Statement (MPS).
As per the poll, around 53% of the participants believe that there will be no change, whereas 44% believe that there will be an increase in the policy rate. Only 3% of the participants anticipate a cut in the policy rate.
The MPC in its previous meeting held on January 24 had decided to keep the policy rate unchanged at 9.75%.
At the time, the SBP stated that “current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5-7%, support growth, and maintain external stability. If future data outturns require a fine-tuning of monetary policy settings, the MPC expected that any change would be relatively modest”.
Monetary policy: SBP keeps policy rate unchanged at 9.75%
However, since the last MPC, a number of major developments have taken place, especially the escalating Russia-Ukraine crisis, due to which commodity prices have witnessed a sharp increase which has consequences on inflation and current account outlook.
Brent crude was trading at $83 per barrel at the time of the last MPC. It has since hit multi-year highs and is now hovering around $116 per barrel as trade disruption and shipping issues from Russian sanctions over the Ukraine crisis have sparked supply worries while US crude stocks fell to multi-year lows.
While Pakistan Prime Minister Imran Khan announced a reduction of Rs10 in petroleum prices in the country, adding that rates will be frozen till the next budget, many believe it will have an impact on the country's tax collection.
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At the same time, the Current Account Deficit (CAD) in January 2022 stood at $2.6 billion, taking 7MFY22 CAD at $11.6 billion, and rising commodity prices have added to the fears. The rupee is also nearing its all-time low against the US dollar.
“With regards to our second question on CAD, around 45% of the participants anticipate CAD to clock in at $16-18 billion, 29% of the participants expect it to touch $18-20 billion and around 10% expect it to cross $20 billion.”
The remaining participants expect it to be below $16 billion, added Topline.
On other hand, inflation rate continues to remain in double-digits as it clocked in at around 12.2% in February 2022 against 13% in January 2022 and 12.3% in December 2021, and a majority of participants expects it to remain in the current range.
“Around 62% of the participants expect average inflation to remain in the range of 11-12% for FY22 whereas 13% of the participants anticipate it to cross 13% levels. Around 25% of the participants expect it to remain in the range of 10-11%,” said the poll.
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