Brokerage house expects status quo in upcoming MPC meeting

20 Oct, 2023

The State Bank of Pakistan (SBP) is expected to keep the key policy rate unchanged in its upcoming Monetary Policy Committee (MPC) meeting on October 30, said a brokerage house.

Topline Securities, in its report released on Friday, said it expects the SBP to maintain the status quo. The key policy rate already stands at a record high of 22%.

“We believe the SBP will keep the policy rate unchanged at 22% in the upcoming MPC meeting,” said Topline.

According to a survey conducted by Topline, 70% of it’s participants expect the policy rate to remain unchanged at 22%. Meanwhile, 16% expect the policy rate to go down by 25-100bps and 11% of participants expect it to drop by more than 100bps.

The remaining 3% expect the policy rate to increase by more than 100bps, while none expect it to increase by 25-100bps.

In the latest MPC meeting held on September 14, the SBP decided to keep the policy rate unchanged at 22% – contrary to market expectations. The SBP Governor had stated that the decision was driven by the fact that real interest rates are expected to remain positive in the future.

Topline said that since the last MPC, major developments have taken place.

“These include; (1) A current account deficit of $8 million in September against $164 million in August, (2) local fuel (petrol & diesel) prices have declined on average by 11%, (3) stable international oil prices at around US$90/bbl, and (4) rupee has gained 7% against the US dollar.

“Based on above factors along with expectation of decline in inflation, cut-off yields in the recent T-Bill auction have declined by 30-45bps, with cut-off yields now standing at 22.2%, 22.39%, and 22.4% for 3, 6, and 12 months, respectively. Furthermore, secondary market yields on 6-Month T-Bill & 3-Years PIBs have down by 239bps and 280bps respectively since Sep 14, 2023,” said the brokerage house.

Responding to a query regarding the expected average inflation for FY24, Topline said that 35% of the participants anticipate inflation to range between 20-22% while 30% of participants expect inflation to fall between 22-24%. 16% of participants project inflation to fall between 24-26%.

On the other hand, 16% of participants expect inflation to be below 20% and 3% of participants expect inflation above 26%.

“With the recent decline in local fuel prices, along with the rupee’s appreciation against the US dollar, we maintain our average inflation target for FY24 at 23%,” said Topline.

To another query regarding the PKR/USD parity outlook in the interbank market by June 2024, Topline shared that 32% of participants anticipate the PKR/USD parity to range between Rs280-320, and another 32% expect it to be around Rs300-320. Whereas, 14% of participants anticipate it to be in the range of Rs320-340.

On the other hand, 19% expect it to be below Rs280, while 3% expect it to be above Rs340.

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