SBP's MPS: Expert anticipates continuation of ‘accommodating monetary policy’

As the State Bank of Pakistan is expected to announce its Monetary Policy Statement (MPS) today, economic expert anticipates no change in the interest rate and the continuation of an ‘accommodating monetary policy.’

“From March till June, the interest rate has declined by 650 basis points from 13.5 percent to 7 percent, and has remained at 7pc, and is expected that it will remain at 7pc with no change in monetary policy,” said senior financial analyst Ali Khizar, Head of BR Research.

The analyst said that the SBP has forecasted headline inflation of 7-9pc, according to which the real interest rate is 0-2pc on a forward-looking basis which will probably be maintained.

There are fears that the government will be imposing a countrywide lockdown amid the second wave of coronavirus, which will keep the ‘accommodating monetary policy’ running, said Khizar. “Globally the interest rates have dropped significantly, which will be the case in Pakistan.”

Talking about Turkey’s recent decision to increase its interest rate, Khizar was of the view that the decision was taken as the Turkish lira is under pressure. However, in Pakistan the currency rate is improving, alongside surplus in Current Account of $1.2 billion and lack of travelling due to COVID-19 have also played a major contribution.

“Till COVID-19 persists travel will remains low, C/A remains in surplus, reserves are increasing, there is low pressure on the currency and there is no demand side inflationary pressure, which will keep the interest rate policy accommodating, and there will be no change in it,” he said.

The financial expert expects the interest rate to remain unchanged till January, and was of the view that it would probably raise in March or May, with the resumption of IMF program that has been stalled for a while. “The IMF program calls for reforms in power sector and NEPRA’s autonomy, for which legislation is needed, which cannot happen before March till the Senate elections, and the currency would also remain around Rs 160 mark,” he informed.