SBP prepones monetary policy announcement, will now hold it on November 19

In a brief statement on Tuesday, the State Bank of Pakistan (SBP) announced that the Monetary Policy Committee (MPC) has decided to bring forward its next meeting from the previously announced date of November 26, 2021.

"The MPC will now convene in SBP Karachi on Friday, November 19, 2021," said the SBP.

The MPC announces the key interest rate for the next two months, reviewing the current state of the economy, and the direction it is likely to take in the short- to medium-term.

The SBP said the meeting has been brought forward in light of recent unforeseen developments that have affected the outlook for inflation and the balance of payments, and to help reduce the uncertainty about monetary settings prevailing in the market.

"The MPC will take stock of these developments and decide about monetary policy. The SBP will issue the Monetary Policy Statement through a press release on the same day."

The SBP had this year introduced an advance calendar of its MPC meetings as it looked to improve the predictability and transparency of monetary policy formulations.

SBP rolls out advance calendar of MPC meetings

It had said that "to manage expectations of economic agents, many central banks across the globe release the schedule of Monetary Policy Committee meetings in advance".

"This practice is consistent with the objective of reducing uncertainty around monetary policy decision making,” it said.

However, the latest development is a testament to the changed economic environment in the country where inflationary and balance-of-payments concerns have forced the SBP to change a schedule it had announced in May 2021.

Reaction

Meanwhile, analysts say the market expects a hike of at least 50-75 basis points (bps), and the revised schedule is SBP's way of addressing uncertainty regarding International Monetary Fund (IMF) negotiations.

“The revised schedule comes as there was a lot of uncertainty among investors pertaining to the IMF negotiations,” Sana Tawfik, analyst at Arif Habib Limited, told Business Recorder.

She added that the market expects a rate hike in the range of 50-100 bps, with a general consensus towards 75bps, as the central bank has already increased the Cash Reserve Requirement (CRR) rate from 5% to 6%.

SBP raises banks' cash reserve requirement

She added that the expected interest-rate hike alongside an increase in the CRR would encourage customers to deposit more in the banking channels.

Tawfik, however, added that the hike in both interest rate and CRR will not bode well for the banking sector, as it will increase their “cost of deposits".

Meanwhile, another market expert, on condition of anonymity, said that the upcoming rate hike was part of IMF's pre-condition.

The analyst informed that the banking sector has a consensus on having a rate hike of around 50-75bps.

“The SBP is moving towards a contractionary monetary policy, by contracting M2 to control inflation,” said the expert, adding that the central bank is also expected to raise margins on non-essential items to curb imports.