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KARACHI: The Monetary Policy Committee of the State Bank of Pakistan (SBP) will meet on Monday (Nov 23) to announce the monetary policy for the next two months. Analysts expect the SBP to keep policy rate unchanged at 7.00 percent in the upcoming Monetary Policy Statement.

"This is backed by our view on inflation, which going forward is expected to somewhat ease off in the coming months," an analyst at Arif Habib Limited said. Two factors supporting our call of contained inflation in short-to-medium term are: expected reversal in volatile food prices (staple goods mainly) on improving supply, and relatively lower international oil prices which have been a breather to the upside risk to energy component of inflation, he added.

He said the challenge of reviving aggregate demand given the changes in macros given outbreak of the Novel Coronavirus may further induce the SBP to stimulate the economy by not increasing policy rate at the moment, although we are running a negative interest rate of 1.86 percent. However, going forward if the 'second wave' hits the economy hard, we might see the SBP reacting accordingly.

Moreover, it seems the fixed income market is also signaling towards unchanged stance as there was no major change in the treasury bills yields of 3M, 6M and 12M in the recent auction (November 18, 2020) which were at 7.15 percent, 7.20 percent and 7.25 percent.

To recall, the Monetary Policy Committee (MPC) convened last meeting in September after a period of 3 months and noted that since its last meeting (June '20), improvement was witnessed in the business confidence, as well as the outlook for growth as a result of decline in COVID-19 cases back then and timely provision of the stimulus package by the government and the SBP.

Copyright Business Recorder, 2020