The State Bank of Pakistan (SBP) is likely to maintain its tight monetary policy stance in its upcoming meeting to ensure macroeconomic stability and contain inflation. The Monetary Policy Committee (MPC) of SBP will meet on Tuesday, July 16, 2019 at SBP head office Karachi for considerations on the evolving macroeconomic situation to decide about the interest rate. Governor State Bank, Dr. Reza Baqir, will chair the meeting of the committee.
In the previous monetary policy announced on May 20, 2019, MPC increased the policy rate by 150 bps to 12.25 percent to address the economic imbalances. The State Bank started monetary tightening since May 2018, when key policy rate stood at 6 percent. Since May 2018 the rate increased by some 6.25 percent to 12.25 percent in May 2019.
This will be first monetary policy after the International Monetary Fund (IMF) programme.
Samiullah Tariq of Arif Habib Research said that the SBP is most likely to increase the policy rate upto 100 bps as the inflation outlook is on the higher side. Muhammad Suhail CEO Topline also predicted some 100 bops surge as macroeconomic challenges still persist.
Presently, inflation is recorded at 8.9 percent but outlook for this month is above 11 percent, therefore it is likely that SBP may further tighten the policy to address the macroeconomic challenges as the government has already agreed with IMF that it will tighten monetary policy proactively, if inflationary pressures persist, economists said.
Muzammil Aslam and Khurram Schahzad, Chief Executive Alpha Beta Core, said that SBP is most likely to maintain the status quo as the policy rate is already higher than inflation rate. They said that SBP has already acted on higher inflation outlook by increasing the rate by 150 bps in the previous policy.
Economists said that tight monetary stance is an instrument in containing domestic demand and anchoring inflation expectations, but it hampers growth. Therefore, Pakistan's real GDP growth is about 3.3 percent in FY19 compared to 5.5 percent in FY18 due to tight monetary policy.
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