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Business & Finance

Monetary policy: market expects no change in key interest rate

  • SBP is currently scheduled to announce monetary policy on Nov 25 (Friday)
Published November 17, 2022
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A majority of market participants expect status quo in the key policy rate in the upcoming Monetary Policy Committee (MPC) meeting of the State Bank of Pakistan (SBP), currently scheduled for November 25 (Friday), according to a poll conducted by brokerage house Topline Securities.

The brokerage house, which itself expects the SBP to maintain the rate unchanged at 15%, was of the view that the policy rate is now at its peak, “where we can see a decline in 2HFY23”.

As per the survey, an overwhelming 79% of the participants expected no change in the policy rate. Around 16% of the participants anticipated an increase whereas 5% of the participants expected a decrease in the policy rate.

Responding to the brokerage house's second question on their view about policy rate by end of FY23, majority think the policy rate will be less than what it is now by June 2023. Around 35% of the participants expected the policy rate to be in the range of 14-15%, 27% of the participants expected policy rate to be in the range of 13-14%, and 19% of the participants anticipated it to be in the range of 12%-13% by June 2023.

In terms of the outlook for Current Account Deficit (CAD), 62% of the participants expected CAD to be in the range of $8-12 billion in FY23, while 21% of the participants expect CAD to be below $8 billion in FY23. Around 16% of the participants expected CAD to be over $12 billion in FY23.

The brokerage house highlighted that CPI inflation increased to 26.6% in October as compared to 23% in the previous month, which was primarily due to a major adjustment in electricity tariffs.

CPI-based inflation jumps in October, clocks in at 26.6%

Furthermore, October imports saw a 13% contraction.

“This is likely to keep a check in CAD going forward and will be a key driver in SBP’s monetary policy stance,” said the brokerage house.

“Moreover, floods and monetary and fiscal tightening measures have led to a slowdown in aggregate demand which could lead to SBP opting for status quo, we believe,” it added.

Last month, the MPC maintained the key interest rate at 15%.

The MPC back then noted “the continued deceleration in economic activity as well as the decline in headline inflation and the current account deficit since the last meeting. It also noted that the recent floods have altered the macroeconomic outlook and a fuller assessment of their impact is underway”.

“The MPC was of the view that the existing monetary policy stance strikes an appropriate balance between managing inflation and maintaining growth in the wake of the floods,” the MPC was quoted as saying in the monetary policy statement.

The policy rate has been raised by a cumulative 800 basis points since September 2021.


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