The State Bank of Pakistan is likely to keep its policy rate unchanged at 14 percent for the next two months because of ease in inflationary pressure, economists said on Wednesday. SBP is going to announce Monetary Policy on Saturday, May 21, 2011.
Analysts said that federal budget for fiscal year 2011-12 is due to be announced on May 28, 2011 and announcements in the next budget will finally determine the future outlook for inflation and government's financial policy. Therefore, the SBP is likely to keep flat interest at current level, they added.
"Inflationary pressure on the economy has reduced, and we believe that easing inflation will help SBP to maintain interest rates stable", they said, adding it is also expected that inflation will be on lower side for the remaining period of current fiscal year. Although the government has announced some increase in petroleum prices, following soaring prices in the international market, the Consumer Price Index (CPI) is still on lower side and stood at 13.04 percent in April, compared with September's 15.71 percent. Another negative impact is high government borrowing. Analysts said that despite negatives in the form of higher borrowing towards fiscal reforms in the next fiscal year on the back of commitment with the IMF as well as much improved external account position, it calls for a prudent wait-and-see approach by the central bank in upcoming policy, keeping discount rate at 14 percent, while inflation is also expected to stay levelled at 14 percent for fiscal year 2011.
The country's current account is in surplus by $748 million in July-April of current fiscal year compared with deficit of $3.456 billion in the same period of last year. "Surplus current account deficit is a positive thing and will provide some window to keep policy rate unchanged, analysts added.
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