KARACHI: The State Bank of Pakistan (SBP) is scheduled to announce Monetary Policy on Jul 29, 2024 with expectation of further cut in the key policy rate.
In the previous meeting held on June 10, the Committee reduced the policy rate by 150 bps to 20.5 percent after maintaining an all-time high level of 22 percent for almost a year. The rate was reduced on back of lower inflation as a significant decline in inflation since February was broadly in line with expectations and the May outturn was better than anticipated earlier.
Next MPC meeting is scheduled to be held on Monday and most analysts and economists are expecting another rate cut.
Majority expect reduction in key policy rate in upcoming MPC meeting, AHL survey finds
In the last briefing, SBP mentioned that room for further cut in interest rate will be dependent on post budgetary and IMF measures assessment.
In a poll conducted by Topline Securities, 75 percent of the market participants are expecting the central bank to announce a rate cut, of which 60 percent are expecting a rate cut of 100bps. Analysts at Topline of the view that SBP can lower the rate by 100bps to 19.5 percent in its upcoming meeting due to receding inflation, estimated to clock in at 11 percent in Jul 2024.
If policy rate is reduced by SBP, this would be the second consecutive cut as in the last meeting SBP lowered policy rate by 150bps after 4 years since Jun 26, 2020.
Topline expects policy rate to decline by 450-550bps by Jun 2025 to 15-16 percent with real interest rate assumption of 300-400bps with expected inflation to average 13-13.5 percent in FY25.
Led by falling inflation expectations, the 6M KIBOR and Treasury bills rate are down 83-84bps since the last monetary policy meeting on Jun 10, 2024 and currently hovering at 19.84 percent and 19.52 percent, respectively. This suggests market participants are also expecting a rate cut in the upcoming meeting.
In the T-Bill auction held on Wednesday, participation of Rs1.793 trillion was seen with the government raising Rs422 billion as against target of Rs150 billion and maturity of Rs123 billion. Yields on 3-, 6-, and 12-month bonds fell by 30-56 bps signaling market expecting another rate cut
Since the last policy, a number of positive developments are on the economic side. Currency prospects have improved due to smooth execution of Staff Level agreement between the IMF and Government. Pakistan’s current account deficit was declined by 79 percent in last fiscal year. In addition, workers remittances reached a record level of $30.3 billion, up by 11 percent.
Copyright Business Recorder, 2024