Inflation Eases, So State Bank of Pakistan Will Keep Policy Rate At 22%

(CTN News) – According to a brokerage poll released on Friday, the State Bank of Pakistan’s key interest rate is likely to remain the same at 22% this month, as the inflation rate eases due to a reduction in fuel prices and a strengthening rupee as a result of a reduction in fuel prices.

The State Bank of Pakistan has increased its policy rate by a cumulative 1,500 basis points since October 2021 in an effort to control rising inflation within the country and to maintain the country’s external balance. There have been no changes to the rate since July 2023, however.

Analysts and participants in the financial market surveyed by brokerage Topline Securities reported that they expected no change in the benchmark rate to be announced at the upcoming policy review meeting scheduled for October 30th.

It has been estimated that at least 70% of respondents expect the policy rate to remain unchanged at 22%. While 16% of respondents expect the policy rate to decline by 25bps to 100bps, and 11% expect it to fall by more than 100bps,” said Topline Securities, citing its poll findings.

There is also a possibility that the State Bank of Pakistan will keep the policy rate unchanged at 22% at the upcoming meeting. Many analysts predict that the SBP will be done hiking interest rates as well as stay on hold until at least March 2024.

A number of new developments have taken place since the last meeting of the Monetary Policy Committee (MPC) of the State Bank of Pakistan held on September 14. There is a good chance that these issues will be discussed by the MPC at one of its upcoming meetings.

It has been observed that Pakistan’s current account deficit has decreased drastically from $164 million in August to $8 million in September, that local fuel prices (diesel and petrol) have fallen by an average of 11%, that international oil prices have remained stable at roughly $90 per barrel, and that the rupee against the US dollar has increased 7% over the past year.

Based on an expectation of a decline in inflation in the coming months, the cut-off yields for the most recent auction of T-Bills have decreased by 30 to 45 basis points (State Bank of Pakistan).

Currently, the cut-off yields for the three-, six-, and twelve-month periods are 22.2%, 22.39%, and 22.4%, respectively.

In addition, since September 14, the secondary market yields on the three-year Pakistan Investment Bonds and the six-month T-Bills have decreased by 280 basis points and 239 basis points, respectively, on the secondary market.

Results have begun to emerge as a result of the stabilisation measures. Having reached a peak of 38% in May 2023, the inflation rate fell to 31.4% in September 2023. As a result, it is anticipated that it will continue to decline over the next few months.

The State Bank of Pakistan stated last week that the external account has improved considerably and foreign exchange buffers are being built up, whereas the external account has improved considerably.

Inflation is expected to decrease significantly during the second half of this fiscal year, so the SBP expects real interest rates to turn substantially positive.

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