- Say latest announcement will be reflected positively in equity and money markets
Experts have termed the Monetary Policy Committee's (MPC) decision to raise the policy rate by 100 basis points to 9.75%, as a positive measure that would curb uncertainty in the market.
The State Bank MPC on Tuesday decided to raise the policy rate from 8.75% to 9.75%.
“The goal of this decision is to counter inflationary pressures and ensure that growth remains sustainable,” the MPC said in a statement while acknowledging increase in inflation and the trade deficit due to both high global prices and domestic economic growth.
Reacting to the development, Tahir Abbas, Head of Research at Arif Habib Limited (AHL), told Business Recorder that the policy rate hike was in line with market expectations. “A majority of market participants were expecting a 100 bps rate hike,” he said.
The analyst was of the view that the forward guidance of the MPC has brought in much-needed clarity among investors, which would be positively reflected in both equity and money markets.
In its statement, the MPC stated: “Following today’s rate increase and given the current outlook for the economy, and in particular for inflation and the current account, the MPC felt that the end goal of mildly positive real interest rates on a forward-looking basis was now close to being achieved.”
“I think this is a positive measure,” Saad Hashmey, Executive Director at BMA Capital, told Business Recorder.
Hashmey said uncertainty created in the previous MPC meeting was finally reduced, especially owing to the MPC statement that it “expects monetary policy settings to remain broadly unchanged in the near-term”.
“This suggests that the policy rate would most likely not change in the upcoming MPC, which is scheduled for 24 January, 2022,” said Hashmey.
"However, the global commodity prices will dictate future action."
On the external side, the MPC noted that despite record exports, high global commodity prices contributed to a significant increase in the import bill, which resulted in the trade deficit rising to $5 billion in November.
Meanwhile, Najam Ali, CEO Next Capital, termed the 100bps increase in policy rate, a “wonderful decision under challenging economic conditions".
“If T-bill yields are kept at 10.5% we would now see stable market conditions,” tweeted Ali.
Meanwhile, Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited, said that the increase was "in line with consensus, thus no negative surprises”.
He said that there are upside risks to inflation and current account deficit (CAD) estimates, but the likely huge Nov-21 CAD would be overshadowed by Dec-21 CAD as it would also be announced before the Jan-21 meeting.
“The tone of forward guidance is positive, which can trigger a recovery in equities, while we may see slight drop in money/bond market yields,” said Rauf.