Majority expects status quo in State Bank's upcoming MPC meeting

A majority of market participants expect status quo -- interest rate to be held at the current rate of 9.75% -- in the upcoming Monetary Policy Committee (MPC) meeting of the State Bank of Pakistan (SBP) to be held on January 24.

Brokerage house, Topline Securities, conducted a poll, featuring a total of 84 participants on expectations over the Monetary Policy Statement (MPS).

Around 60% of the participants believe that there will be no change in the policy rate in the upcoming MPS whereas the remaining participants expect an increase.

The poll results conveyed that 18% of participants expect a rise of 25 basis points, whereas 22% of the participants anticipate a rise of 50 basis points or more.

The central bank, in its bid to tackle inflation and widening current account deficit led by a high import bill, has raised the policy rate on multiple occasions in recent months. Since September 2021, the SBP has raised the policy rate by 275bps from 7% to 9.75%.

However, in its last monetary policy statement, SBP had highlighted that the “MPC felt that the end goal of mildly positive real interest rates on a forward-looking basis was now close to being achieved”.

SBP Governor Dr Reza Baqir in an interview with Bloomberg last month said the central bank would now ‘take a pause’ to evaluate the impact of the tightening measures.

“We don’t want to be late in trying to ensure that inflation expectations remain anchored and therefore, we have raised rates by accumulative 275bps since September. We have also indicated in our Monetary Policy Statement as forward guidance that now we are going to take a pause.

“We are going to take a pause to first look at the effects of the tightening that we have already done, and then we will consider what monetary policy settings should be afterwards,” Baqir had said last month.

However, most of the participants in the poll survey were of the opinion that a hike in the remainder of FY22 is highly likely.

Around 84% of the participants anticipated a further rate increase by June 2022 while just 16% of the participants expected no change in interest rates till June 2022.

In response to the question on inflation expectations for FY22, 32% of the total participants believe that inflation is likely to average 10-10.5% in FY22. On other hand, 31% and 27% of the participants expect inflation of 10.5-11% and above 11%, respectively. The remaining 9% of the participants expect inflation to average below 10%.

“We expect CPI inflation in FY22 to remain at around ~11%. We believe a future rise of 50-100bps till June 2022 is likely,” said Topline Securities.