The State Bank of Pakistan (SBP) is likely to maintain status quo in the upcoming Monetary Policy due to uptick in CPI inflation. The SBP will announce its monetary policy on Saturday for next two months. Independent monetary policy committee will meet on May 21, 2016 for deliberations on the key economic issues to take a final decision on the discount rate. After the meeting, the policy will be announced through a press statement. In the previous four policies, the SBP kept the key policy rate unchanged at 6 percent.
Analysts said that inflation is already moving upward and CPI inflation for Apr-2016 clocked in at a 16-month high of 4.17 percent YoY compared to 3.94 percent in Mar-2016 and 2.1 percent in April 2015. On monthly basis, during April 2016, CPI increased by 1.6 percent as compared to an increase of 0.2 percent in March 2016 and 1.3 percent in the same month last year. In addition, the average inflation for Jul-April FY16 period was recorded at 2.79 percent compared to 4.81 percent for the corresponding period last year.
"As the inflation is on increase, we're expecting that the SBP may continue its wait and see policy by maintaining interest rate at current level," they added. International crude oil prices are increasing and it will definitely put a negative impact on the domestic oil prices, resulting in higher inflation in coming months, they added.
"We are expecting that the SBP is most likely to maintain status quo in the policy to be announced on Saturday as inflation is surging on the back of recent increase in commodity prices," said Muzammil Aslam, CEO Invest and Finance Securities Limited.
He said the federal government is expected to increase and introduce new taxes in the budget 2017 and Ramazan is also around the corner. He added that, "this all may result in inflationary pressure on the economy." Faisal Mamsa, CEO Landmark Capital, said that real interest rates have inched up, inflation is tending higher and credit growth is recovering. However, there is no compelling trigger for a change in key policy rate, he added.
Muhammad Suhail of Topline is also anticipating that adopting a vigilant attitude, the SBP may keep the policy rate unchanged at 6 percent ahead of expected inflation growth on the back of rising oil prices in the world market. "Policymakers are still concerned about low growth rate and would like to see monetary stimulus intact to create demand," said Eman Khan of Tresmark, which provides the market rates. There are a lot of unutilised industrial capacity and infrastructure requirements which they should target, she added.
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