ISLAMABAD: The central bank's Monetary Policy Committee (MPC) will meet today to announce the new policy rate for the next two months.
The State Bank of Pakistan's (SBP) monetary policy committee, will meet under its head Reza Baqir, to review key trends and economic indicators to decide about the monetary policy for the next two months.
Following the meeting, SBP Governor Reza Baqir will issue the monetary policy statement at 5pm.
However, a majority of analysts surveyed by The News believe the SBP’s Monetary Policy Committee (MPC) will hold the policy rate steady at 7%.
Any reversal in the central bank’s accommodative monetary policy stance is to be unlikely at least for the next two months, especially with growth uncertainties rising again due to resurgence in the Covid cases, and the low level of vaccination.
Some analysts see a rate hike around late 2021, while others expect an increase early next year.
“Expect interest rates to remain unchanged for now. This is because of pro-growth policies of the government and possibility of resurgence of Covid and accompanied lockdowns. Both of these reasons will likely lead State Bank to maintain the status quo in its upcoming monetary policy review,” said Saad Hashemy, an executive director at BMA Capital.
Analysts and the markets are also looking to the central bank for how it will respond to the risks of increasing inflationary pressures and exacerbating current account deficit.
“In my view, interest rates would remain constant at current levels, as SBP has to balance risks like CAD [current account deficit] and inflation, with Covid impact on domestic and global economy,” said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.
In the last monetary policy statement in May, the SBP expected inflation to gradually fall toward the 5-7% target range over the medium-term. However, an ongoing rising trend in international commodity prices, upward adjustment in the utility tariffs and wage pressures to further feed into inflation, said the central bank's third quarterly report on the State of Pakistan’s Economy for FY2021.
“On the monetary policy side, in the near term, the need to sustain economic momentum will take precedence over weakening trade balance and negative real rates,” said a report issued by Alfalah Securities.
“However, current interest rates cannot be upheld for long, amidst resurging commodity prices and a widening import-export balance. We believe SBP will wait and see the Covid situation and delay tightening till September 2021.”
The government has set an economic growth target of 4.8% in FY2022, compared with 3.9% in FY2021. Inflation target is fixed at 8.2%.
The current account is expected in the range of $7-8 billion or 2.2-2.6 percent of gross domestic product this fiscal year, according to analysts.
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