MPS on 28th: Policy rate may be kept unchanged

The State Bank of Pakistan (SBP) will announce the monetary policy on January 28 for next two month. The Monetary Policy Committee (MPC) of the SBP will meet on Tuesday, (Jan 28) at the SBP Karachi for deliberations on economic indicators to take a decision on key policy rate. State Bank of Pakistan (SBP) Governor Dr Reza Baqir will announce the decision of the MPC at a press conference the same day.

In the previous monetary policy, announced in November 2019, the committee decided to leave the policy rate unchanged at 13.25 percent. Economists said that most likely, the MPC will keep the policy rate unchanged owing to rising inflationary pressures on economy. Although, there is significant improvement on external account side and the country's foreign exchange reserves are gradually increasing, however, concerns about the inflation are still persisting, they added.

They said that the federal government has already raised power tariff, while some surge in gas prices is on the cards. In addition, wheat and sugar prices are also soaring due to shortages in the domestic market.

The State Bank in its recent report had mentioned that managing food prices has become challenging and supply-management issues, such as weak governance in commodity procurement agencies, hoarding practices and regional trade bottlenecks, may potentially perpetuate food inflation going forward.

In case of inflation, the SBP projected that, pressures are expected to recede in the second half of the fiscal year (FY20), in light of a continued softness in domestic demand, which is expected to keep core inflation in check, and stability in the exchange rate on the back of improving current account deficit and financial inflows.

For the full-year, the SBP estimated that average headline CPI inflation will stay within the range of 11-12 percent.

However, the SBP said that this forecast is subject to upside risks in the form of a reversal in global crude prices, exchange rate depreciation and increased budgetary borrowings

Previously, the SBP jacked up the policy rate by 100 bps in July 2019 to 13.25 percent, the highest level since October 2011. Since July 2019, the committee has kept the policy rate unchanged at this level due to positive development on economic front.