SBP expected to maintain policy rate in meeting today

The monetary policy rate is likely to remain unchanged as the monetary policy committee of the State Bank of Pakistan (SBP) conducts a meeting in Karachi today.

In a statement on Monday, the central bank said its committee will meet today to decide on the new interest rate, which was previously held at 22%.

A majority of the financial sector experts believe the rates will remain unchanged, while some expect a 1% reduction.

Last week, The News report mentioned that the SBP will make the pivotal decision with the potential to enact its first cut since June 2020, as inflationary pressures recede and the nation's external accounts improve.

However, the anticipation of a rate cut is tempered by the equally likely prospect of maintaining the current rate, given the commencement of loan review discussions with the International Monetary Fund (IMF).

As the central bank approaches its monetary policy decision on March 18, the financial markets remained abuzz with speculation.

The SBP faces a critical choice — to cut interest rates for the first time in nearly four years or to hold steady amidst ongoing loan review and a new bailout talks with the IMF.

Analysts were closely watching the central bank, which may initiate a reversal of its interest rate policy by reducing rates by 100 basis points (bps) during its monetary policy meeting next week.

"Anticipation is growing that the central bank may consider initiating the interest rate reversal cycle by slashing interest rates by 100 basis points (bps) when it announces its monetary policy decision on March 18," a report from brokerage Arif Habib Limited (AHL) stated last week.

If the benchmark interest rate is lowered by the SBP's Monetary Policy Committee (MPC), it will be the first rate cut since June 2020. The SBP had raised the policy rate from 7% in September 2021 to a record 22% in June 2023. The rate was risen by 15% during this time.

However, it’s a difficult call this time. The market is split on this issue, and the MPC may decide to stick with the status quo while newly elected Prime Minister Shehbaz Sharif attempts to negotiate a new longer-term loan programme with the IMF to keep the economy stable in the face of high inflation and the need for external funding. Pakistan has always been advised by the IMF to adopt a tight monetary policy stance.