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KARACHI: The State Bank of Pakistan (SBP) will unveil the Monetary Policy Statement for next two months on Monday (Sept 21) with expectations of a status quo.

The Monetary Policy Committee (MPC) of the SBP will meet the same day at the SBP Karachi to review the economic indicators and decide about the monetary policy for next two months. State Bank of Pakistan Governor Dr Reza Baqir will announce the decision in a press conference after the meeting.

Majority of economists and analysts are expecting that the Monetary Policy Committee will keep the interest rate unchanged at 7 percent in upcoming meeting as since March the SBP has made significant reduction in key interest rate to counter the effects of Covid-19 pandemic.

The SBP committee rapidly cut the policy rate by 625 basis points (bps) during the March-June to support the economy. Accordingly, scheduled Monetary Policy Committee meeting in July was postponed as the committee believed that it has already taken a number of actions to address the economic challenges.

At its scheduled meeting held on March 17, 2020, the MPC cut the policy rate by 75 bps to 12.50 percent as the outlook for inflation was improved in light of the deceleration in domestic food prices, significant decline in consumer price expectations, sharp fall in global oil prices, and slowdown in external and domestic demand due to the Coronavirus pandemic.

However, the negative impact of Covid-19 on economy forced the MPC to review the monetary policy and just after one week of scheduled meeting, the committee on March 24, 2020 in an emergent meeting reduce the key policy rate by a further 150 bps to 11 percent. The MPC was of the view that this cumulative easing would cushion the growth slowdown while protecting inflation expectations.

The MPC on April 16, 2020 called another emergent meeting due to worsening outlook for global and domestic economic activity in the wake of the Corona pandemic. In light of reduction in economic growth and inflation expectations, the MPC decided to further cut the policy rate by 200 bps to 9 percent.

Later in a scheduled meeting on May 15, 2020, the MPC reduced the policy rate by 100 bps to 8 percent as inflation outlook was improved further in light of the cut in domestic fuel prices.

The MPC in another emergency meeting on June 25, 2020 cut the policy rate by 100 bps to 7 percent to address the risks to domestic economic growth. The last cut in brings the cumulative reduction in the policy rate since mid-March to 625 bps.

Analysts at Arif Habib Limited said that this decision of rate cut was well supported by the economic fundamentals such as inflation that slid down from 10.24 percent in March to single digit in the following months. Since then inflation has remained range bound hovering between 8 to 9 percent YoY.

However, a key threat to inflation remains the upward revision in the electricity and gas tariffs that at the moment is the reason behind Pakistan being at loggerheads with IMF causing hindrance in the on-going negotiations under fund program, they added.

Copyright Business Recorder, 2020