There is a general perception in the market that State Bank has lately been following the market expectations in making its monetary policy decision. But the history may suggest otherwise.
According to Reuters poll of analysts community expectations, four out of six times, analysts forecast was in line with SBPs decision in 2010. However, the catch is in the trend and thinking of monetary policy committee members.
In November 2009 when SBP reduced the rate by 50 basis points to 12.5 percent, there was a divide amongst the policymakers as regards whether to maintain status-quo or cut the rate. That gave an indication of status-quo in January 2010. There was consensus amongst the analysts on status quo and the MPC members unanimously decided so.
This helped in building analyst expectations for the March review which was as same as January. The MPC decision was no different but unlike January, two out of seven members voted for a rate hike. This, however, didn change analysts mind for May forecast as well as the MPC decision with an exception of another member in favour of hike - 4-3 was the vote for status quo.
Few analysts picked the gradual change in the mood of the MPC members as three houses forecasted a hike in July while the rest were in the hangover of no change. The MPC unanimously decided to increase the discount rate by 50 bps to 13 percent.
In September again, there was a divide amongst analysts community with half expecting no change and the rest expecting a hike. MPC vote was 6-2 in favour of 50 bps increase to 13.5 percent.
Two previous hikes were enough to make majority of analysts to think of another rate hike in November and that was the case, reportedly a unanimous decision of MPC members.
For tomorrows review, Reuters poll is 6-2 for rate hike by 50 bps which can be anticipated from trend - three consecutive hikes followed by an expectation of further increase like three decisions in a row of no change followed by forecast of status quo.
It will be interesting to see how MPC acts (or reacts) tomorrow and how analysts will react in March.
The new SBP governor has built a reputation of being a hawk, so a rate hike cannot be ruled out. But improved macroeconomic indicators in the short-term - current account surplus and low inflation in January and February hint a status quo.
Nonetheless, with out-of-bound fiscal deficit expectations further note printing is inevitable which is building inflationary expectations in the medium-term - so by no means is the tightening cycle complete.
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DISCOUNT RATE EXPECTATIONS
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Last six Poll Actual
decisions Expectations Hike Status- Cut decision
quo
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10-Nov 50 bps hike 9 4 50 bps hike
10-Sep 50-100 bps hike 4 6 50 bps hike
10-Jul Steady 3 12 50 bps hike
10-May Steady 1 10 Status-quo
10-Mar Steady 1 8 Status-quo
10-Jan Steady 1 10 Status-quo
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Source: Reuters MPS preview poll, SBP
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