KARACHI: The State Bank of Pakistan (SBP) is set to announce its key policy rate for the next six weeks today and the majority of pundits have agreed to keep the central bank rate unchanged at 15 percent. But will leave. stability of the economy.
However, a small portion of market participants did not rule out a rise of 50-100 basis points or a decline of 25-50 basis points.
More importantly, Finance Minister Ishaq Dar, who is sticking to his old prescription of running a controlled economy, would prefer to see an easier monetary policy. The policy rate is a tool for the central bank to strike a balance between inflation and economic growth.
The central bank increased the rate by a total of 800 basis points to 15 percent over 11 months (September 2021 to July 2022).
The Monetary Policy Committee (MPC) kept the rate unchanged at its previous monetary policy stance on October 10, 2022.
Most pundits are not expecting a rate hike as the finance ministry has not announced anything in recent T-bill auctions.
OMO injection is increasing and its value is around 6 trillion rupees. And State Bank has issued recent OMOs at prevailing rates. This means that the State Bank may not be thinking of any rate hike. The same goes for secondary market production.
Also, another positive development after the last MPC meeting is the decrease in international prices of key commodities like WTI, Coal, Brent, Steel, Wheat, and Arab Light. This bodes well for our external account position, hence providing much-needed relief to our trading numbers.
Recall that, in the last monetary policy statement as well, the MPC said that the current rate prudently reflects a balance between maintaining post-flood growth and managing inflation.
Additionally, as mentioned in the last statement, the State Bank is closely monitoring the pace of inflation. On the inflation front, headline inflation has remained in double digits since November 2021, mainly due to higher food and energy prices.
In the month of October, headline inflation reached 26.6 percent year-on-year. However, on a month-on-month basis, inflation increased by 4.71% mainly due to fuel cost adjustment and increase in food prices.
The central bank is also expected to release a preliminary calendar of MPC meetings for the first half of calendar year 2023 after today’s meeting.
