MPS on Saturday

The State Bank of Pakistan (SBP) will announce Monetary Policy Statement for the next two months on Saturday. Sources told Business Recorder on Monday that the central bank's board of directors will meet on July 12, 2014 for deliberations on key economic issues to finalise the monetary policy for next two months.
The SBP board will take a decision on the key policy rate after reviewing all economic internal and external prospects particularly inflation, government borrowing, forex reserves and external accounts. After the board meeting, Ashraf Mehmood Wathra, Governor, State Bank will announce monetary policy at a press conference.
Although, all major economic indicators are gradually improving and real GDP posting a growth of 4.1 percent for FY14. However, despite positive economic indicators, single digit CPI inflation, lower government borrowing, improvement in reserves and stability in the foreign exchange market, the SBP had kept its key policy rate unchanged at 10 percent in the last monetary policy announced in May this year.
Economists are of the view that most probably the SBP may continue the status quo on monetary policy for next two months ahead of expected inflationary pressure on the economy followed by Ramazan and budget impact. "The central bank is likely to keep policy rate unchanged at 10 percent aimed at maintaining ongoing improvement in the key economic indicators," they added. The CPI inflation for June 2014 clocked in at 8.22 percent compared to 8.3 percent in May 2014.
Analysts said the headline inflation remained at 8.6 percent in FY14, revealing the Real Interest Rate (RIR) nearly 1.5 percent and hinting towards easing the discount rate. However, the International Monetary Fund's pressure to keep monetary tightening intact is still the main barrier for further monetary easing, they added.
They said there are some factors, including Ramazan and budget measurers that may delay the cut in policy rate. During last five years, the average monthly inflation in Ramazan remained on higher side and the same is expected this Ramazan. In addition, the retail prices of different essential commodities have already started climbing in the market as a budget impact, they added. "Ahead of expected inflationary pressure of Ramazan and budget measures, the SBP is likely to adopt a wait and see policy," said Khurram Shahzad, CIO Lakson Investment.