Despite the rupee’s historic lows, many believe the State Bank of Pakistan (SBP) will leave its policy rate unchanged next week.
The central bank is anticipated to begin monetary tightening by the first quarter of next year, according to a storey published in The News.
In July, the SBP’s Monetary Policy Committee (MPC) kept the policy rate at 7% to help the economy recover. On September 20, the MPC will release its monetary policy decision.
“In my perspective, SBP would continue to keep policy rate as it needs to counter the negative impact of COVID-19 with lower interest rates,” said Samiullah Tariq, head of research at Pak-Kuwait Investment Company.
“I believe monetary policy will be tightened after January 2022,” says the author. The government’s pro-growth measures are viewed as a key factor in the MPC’s decision to keep the policy rate unchanged this year. Increasing inflationary pressures and a widening current account deficit, on the other hand, are putting pressure on the MPC to raise rates sooner rather than later.
“We do not expect interest rates to alter. “Inflation and the current account position look to be manageable,” said Taurus Securities’ head of research, Mustafa Mustansir. “There are still few visible indicators of demand-side pressure.”
Lower interest rates, according to Mustansir, are favourable to growth, and “growth is the government’s objective at this moment.” The MPC stated in its most recent forward guidance that it expects monetary policy to remain accommodating in the short term, with any policy rate adjustments to be modest and gradual in order to attain mildly positive real interest rates over time.
The MPC stated that if indicators of demand-driven inflation or current account vulnerabilities develop, it would be wise for monetary policy to begin to normalise through a gradual reduction in the degree of accommodation.
According to a study done by brokerage Topline Research, the majority of financial market players expect the September policy to remain unchanged. According to the survey, around 65 percent of participants predict no change in the policy rate in the next monetary policy announcement, compared to 89 percent in the previous poll.
Almost a quarter of the participants foresee a 25-basis-point (bps) hike in the policy rate, while ten percent forecast a 50-basis-point or higher increase. According to the poll, none of the participants expect the policy rate to be decreased.
“Given recent vulnerabilities in the current account, higher-than-expected SPI [sensitive price index] readings suggesting no let down in CPI [consumer price index] inflation, and the start of discussions with the IMF on resumption of the programme, we expect a 25 bps increase in the policy rate in September 2021 MPS,” said an analyst at Topline Securities.
Another monetary policy study by the Policy Research Unit (PRU) and the Policy Advisory Board of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) proposed a 50-100 basis point cut in the policy rate.
According to the survey, 84 percent of businessmen and researchers believe the policy rate should not be raised, and nearly half of them believe it should be decreased by 50-100 basis points.
With a sigh of relief, the policy brief provided on the occasion observed that core inflation in Pakistan – the most decisive indication for establishing a central bank’s policy rate – has drastically decreased to 6.3 percent in August, compared to 6.9 percent the previous month.
The policy interest rate should not exceed 6%, according to Mian Nasser Hyatt Maggo, President FPCCI, and should be cut down to 5% if the SBP wishes to stimulate commercial activities and economic growth in the country. He also mentioned that the region’s interest rate is merely 3-4 percent, and that we must compete with the region.
