All eyes on SBP’s monetary policy today amid dwindling economy

State Bank of Pakistan is scheduled to meet today (Monday) to announce the new monetary policy as the economy of the country has been hit hard with a booming surge in dollar price against the Pakistani rupee and a lukewarm response from the incumbent government to devise an economic plan, reported 24NewsHD TV channel.

The central bank in its today’s meeting will review its key policy rate for the next six weeks to maintain the balance between inflation and economic growth.

The Monetary Policy Committee (MPC) will meet for the first time under the leadership of acting governor Dr Murtaza Syed to take decisions regarding the key policy rate. There is a strong possibility that SBP will again raise its benchmark interest rate considering the current economic situation, however, the resultant effect will be still dependent on the factor that how long the government will take to give a clear pathway for the revival of the economy amid a turbulent political environment, which is going to become more volatile in the coming days amid a call of long march given by the ousted premier Imran Khan to press his demand for dissolution of assemblies and holding fresh elections.

In a surprise move, the SBP raised its benchmark interest rate by a significant 250 basis points (bps) on April 7 to 12.25% to safeguard external and price stability. However, this move helped little as the Pakistan rupee showed some stability against the US dollar at first but soon started a free fall and has crossed Rs200 mark in the previous business week during the inter bank trading.

The SBP has cumulatively increased the rate by 525 basis points since September 2021 to control inflation and narrow the current account deficit.

Market speculations hint toward a 100 bps increase, which would take the rate to 13.25% as the central bank would look forward to countering a high inflation reading and likely surge in energy prices to pave the way for reviving the stalled multibillion-dollar International Monetary Fund (IMF) programme.

A section of pundits feels, however, that the monetary policy decision may not be as predictable this time around as anticipated due to uncertainties at the global, regional and domestic levels in the political and economic arenas.

An analyst at Topline Securities in a report said: “Given concerns along with rising inflation and weakening currency, we anticipate the SBP to raise the policy rate by 100bps".

“Since the last Monetary Policy Statement (MPS) in April, secondary market rates including T-Bill/KIBOR rates have gone up by around 200bps due to uncertainty on the removal of subsidies on petrol and diesel and continuation of the IMF programme.”

Treasury bills cut-off yields, however, declined for the first time after almost a year in the latest auction held on May 19, declining by 5-29bps with three, six and 12 months’ T-Bill yields clocking in at 14.49%, 14.70%, and 14.75% respectively.

Topline Research conducted a poll of leading fund managers to assess their views on the country's economic outlook. As per the survey results, around 54% of the participants expected an increase of 100bps, 14% of the participants anticipated an increase of 150bps and 11% expected an increase of 200bps or more.

On the other hand, only 13% of participants expect an increase of 50bps while 9% expect no change.