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KARACHI: The meeting of the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) will be held on June 12, to review the economic indicators and take a decision on the key policy rate.

In the previous monetary policy meeting held on April 4, 2023, the committee raised the policy rate by 100 basis points to 21 percent, which is the highest ever interest rate in the Pakistan’s history. The committee took this decision because of higher inflation statistics as inflation in March 2023 rose further to 35.4 percent and MPC was expecting that it will remain high in the near term.

As the policy rate is already at an all time high level, majority of analysts are expecting status quo in the upcoming MPC meeting. Although the country is still facing a crisis of foreign exchange, the federal government has cut the petroleum prices two times during the last two week, of which inflation is likely to decline in coming months, they said.

In order to gauge the view on monetary policy outlook, Topline Research has conducted a poll of key market participants on expectations over policy rate and key macro estimates.

As per Topline survey, the majority of the participants (69 percent) expecting no change in policy rate. While, 23 percent participants expected an increase in policy rate, out of these, 16 percent participants expect a 100 bps increase, and 7 percent participants expect above 100bps increase. Out of total; however, some 8 percent of participants are expecting a decline in policy rate.

CPI Inflation in May 2023 rose to record high of 38 percent YoY vs. 36.4 percent in April 2023 led by higher food inflation.

Topline has anticipated that monthly CPI inflation will soften from June 2023 and gradually decline over the next 12 months mainly because of base effect along with tight monetary and fiscal policy.

Analysts said that petrol and diesel prices are also down by 7-12 percent last month. This will also ease inflation in coming months, unless there is any major pressure on PKR.

In response to the question on IMF 9th review, 42 percent participants expect an extension in the IMF program, while 40 percent participants expect IMF funding will not materialize and 18 percent of the participants expect an agreement with the IMF Board approval before Jun 30, 2023. Considering these factors, Topline expects no change in the upcoming MPC meeting.

Copyright Business Recorder, 2023

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