The State Bank of Pakistan (SBP) will release Monetary Policy Statement (MPS) on Friday (today) with analysts expecting no change in the discount rate for the next two months. The SBP''s Central Board of Directors is going to meet on April 13, 2012 at the bank''s head office to review the monetary policy stances and take final decision on the key policy rate.
In the last monetary policy announced in February 2012, the SBP, sensing no abatement of economic pressures, decided to maintain monetary stance by keeping its policy rate unchanged at 12 percent.
Economists and analysts are expecting that the policy rate will be kept unchanged because of rising inflationary pressure on the economy and excessive government borrowings to meet the high fiscal deficit.
With an increase of 1.2 percent, the Consumer Price Index (CPI) has reached 10.79 in the month of March 2012. While, Year-on-Year basis, average inflation has reached 10.81 percent, which is almost 1.19 percent lower than the discount rate of 12 percent.
Analysts expect further inflationary pressure followed by food and non-food inflation during the next two months, however they believe that annual inflation will be according to the target of 12 percent by the end of current fiscal year even after incorporating a recent hike in fuel prices.
They say the rising government borrowing for budgetary support, is a major cause of concern, as the government has already borrowed over one trillion rupees in the first eight months of current fiscal, while another borrowing of Rs 1.08 trillion has been estimated during the fourth quarter of fiscal 2012 through Market Treasury Bills, Pakistan Investment Bonds and SUKUK.
"Consumer Price Index (CPI) is in line with expectation and supporting a cut in discount rate, however the rising fiscal deficit and government borrowing are not allowing a downward change in the policy rate," said Khurram Shahzad an analyst at investcap. Therefore, he said it was most likely that the SBP would keep its policy rate at 12 percent for next two months.
"Recent T-bills auction also validates our expectation for unchanged discount rate as we have seen unchanged cut-off yields on 3-month, 6-month and 12-month," said Muhammad Farhan Malik, an analyst at Summit Capital.
"Our anticipation of an unchanged discount rate is mainly based on inflation numbers as the current inflation stands at 10.79 percent YoY in March, 2012," he said.
It may be mentioned here that in January this year, the Central Board of Directors of the State Bank of Pakistan had decided to reschedule its meetings on monetary policy from the last week of the alternate month to the first half of the following month during a calendar year.
This change in the schedule of the board meetings has been made in order to take into consideration the latest data on inflation released by the Federal Bureau of Statistics (FBS). The data now becomes available at the beginning of a month instead of the second week.
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