SBP likely to hold policy rate

KARACHI: The State Bank of Pakistan (SBP) is expected to hold the policy rate at 5.75 percent for the next two months in its upcoming monetary policy to be announced on Friday, January 26, 2018, analysts said on Wednesday.

“Taking cue from the recent monetary policy meeting minutes and observing the prevailing price levels we expect the SBP to maintain status quo in interest rates in the upcoming monetary policy meetin g,” an analyst at Alfalah Securities said in a report. The analyst added that though, Monetary Policy Committee has acknowledged weaknesses in the external sector in its last two meetings, it has kept the discount rate unchanged due to its positive implications on economic growth rate, and below target inflation.

“Overall, we slightly alter our interest rate hike expectation where we now see tightening to begin from May 2018 compared to July 2018,” the brokerage report said.

The SBP kept the policy rate on hold at 5.75 percent in its last meeting held in November.

Analysts also see inflation for January at around 4.71 percent because of a decrease in food prices.

The SBP, in its recently released first quarterly report for this fiscal year, maintains macroeconomic projections, but sees more upside risk to the inflation target of 6.0 percent.

The central bank, however, highlighted two factors posing risk to the inflation target set for FY18. One, it sees a rupee-depreciation led increase in the cost of imports trickling down to domestic prices, and the other, a change in [international] oil market impacting the local prices. The central bank also expressed concerns over the widening external current account. It said an increase in the current account deficit along with growth in economic activity was a recurring phenomenon for Pakistan, and one that has the tendency of disrupting growth cycles. The July-December FY18 current account deficit surged $59 percent to $7.413 billion.