Monetary policy: majority expects status quo in key interest rate

A majority of market participants expects status quo in the key policy rate in the upcoming Monetary Policy Committee (MPC) meeting of the State Bank of Pakistan (SBP), currently scheduled for October 10 (Monday), according to a poll conducted by brokerage house Arif Habib Limited (AHL).

The brokerage house, which itself expects the SBP to maintain the policy rate unchanged at 15%, conducted a poll in which it took feedback from various sectors – both financial and non-financial – on expectations over the Monetary Policy Statement (MPS).

Inflation reading falls slightly in September, clocks in at 23.2%

Around 79.2% of respondents were of the view that the SBP will keep the policy rate unchanged in October 2022’s MPS while 20.8% of the total respondents expected a rate hike.

Of the respondents expecting a hike, a majority (10.4%) are anticipating a rate hike of below 75 bps, 6.3% expect a rate hike of 100 bps and 4.2% expect a rate hike of 150 bps and above.

AHL said the MPC meeting comes as the recent developments in inflation are in-line with expectations, while a moderation in domestic demand has improved the external position.

Monetary policy: SBP keeps key interest rate unchanged at 15%

The brokerage house said that the central bank believes that Pakistan’s external financing needs should be more than fully met in FY23 aided by rollovers by bilateral official creditors, new lending from multilateral creditors, and a combination of bond issuances, FDI and portfolio inflows.

“Thus, pressure on the rupee should lessen while SBP’s FX reserves should assume the upward trajectory which currently stand at $8 billion (23-Sep-2022),” it said.

Monetary policy: a look at SBP's previous announcements

Moreover, since the last MPC meeting, international prices of major commodities have declined such as WTI (-12%), Coal (-14%), Brent (-9%), Steel (-2%), Cotton (-18%) and Arab Light (-6%).

“This bodes well for our external account position, hence providing much needed relief to our trade numbers,” said the brokerage house.

Back in August, the MPC of the State Bank maintained the key interest rate at 15%.

"With recent inflation developments in line with expectations, domestic demand beginning to moderate and the external position showing some improvement, the MPC felt that it was prudent to take a pause at this stage," the MPC was quoted as saying in the monetary policy statement back then.

The policy rate has been raised by a cumulative 800 basis points since September last year.