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KARACHI: The State Bank of Pakistan (SBP) is most likely to maintain the policy rate at 22 percent in the next meeting to be held this month, analysts said.

According to AHL Research, the monetary policy committee of the SBP is scheduled to convene its meeting this month to decide about the policy rate.

In the last scheduled meeting of December 2023, the SBP maintained the policy rate unchanged at 22 percent citing that the decision took into consideration the impact of the surge in gas prices in November 2023, which exceeded the MPC’s initial projections for inflation.

The MPC acknowledged that this could have repercussions for the inflation outlook, but also noted certain mitigating factors, such as the recent decline in international oil prices and improved availability of agricultural produce.

Additionally, it also evaluated that the real interest rate remained positive when assessed on a 12-month forward-looking basis.

As per AHL Research projections point towards a downward trajectory in headline inflation during the latter half of FY24.

The average MoM rate is projected to hover around 0.6 percent in second half of FY24, a significant decrease from the 1.7 percent average witnessed in the first half of FY24.

This forecast culminates in an estimated annual average of 24 percent for headline inflation in FY24 as against 29.2 percent in FY23.

Several contributing factors, including the substantial base effect, stabilization of global commodity prices, support from the stability of the PKR against the USD, and efforts to curtail the current account deficit, underpin these expectations.

Moreover, the recent LSM data published indicates a downtick of 4.08 percent YoY in October 2023. However, on a MoM basis, LSMI recorded a decline of 2 percent.

With this, during 4MFY24, LSM achieved a negative growth of 0.44 percent YoY. In our opinion, the easing of import restrictions remained crucial for driving the growth of LSMI. We believe, this has contributed to the improved availability of key production inputs.

On the external front, during 5MFY24, Current Account Deficit (CAD) saw a remarkable 64 percent YoY decline, amounting to USD 1.16 billion.

This stands in stark contrast to the corresponding period in the prior year, where a deficit of USD 3.26 billion was recorded, on the back of a 28 percent YoY reduction in trade deficit.

Additionally, there is the improvement in SBP foreign exchange reserves and surged from $ 4.4 billion at the end of June 2023 to $ 8.22 billion in Jan 2024.

Copyright Business Recorder, 2024

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