KARACHI – At its fourth consecutive policy meeting on Tuesday, the State Bank of Pakistan (SBP) is anticipated to keep its key policy rate unchanged.
Analysts predict that inflation will begin to decline in the upcoming months, opening the door for rate reductions to stimulate the economy.
With a $3 billion loan program approved by the International Monetary Fund (IMF) in July that helped avert a sovereign debt default but included conditions that complicated efforts to curb inflation, the South Asian nation has started a difficult path to economic recovery under a caretaker government.
Following an all-time high of 22% in June, Pakistan’s key rate has not changed in the last three rate meetings.
In a Reuters survey of 12 analysts, the median estimate is for no change on Tuesday; one analyst is recommending a 100 basis point cut. Depending on how inflation develops, the market expects rates to begin progressively decreasing in the first half of 2019.
“At this time, there is no reason to ease inflation because it is still too high and real interest rates are negative. Usman Zahid, director of research at AKD Securities, stated, “Our trading partners, such as the US, already have positive real interest rates.”
According to Zahid, a number of factors, including rising gas prices, contributed to November’s 2.7 percent month-over-month increase in inflation. However, yearly inflation is anticipated to begin declining in February 2024.
The Pakistan Bureau of Statistics (PBS) reported that annual inflation in November was 29.2 percent, a little higher than in October but still far lower than the peak of 38 percent in May.
Interest rate peaks in Pakistan have already been priced in by investors, and the currency and stock markets have benefited from the anticipated successful conclusion of the IMF program.
In the week ending December 8, Pakistan’s benchmark index increased by 4,532 points, or 7.3pc, to trade at a new all-time high, breaking through the psychological barrier of 66,000 points.
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This was the highest weekly return in terms of points.
“Stable currency, low current account deficit, and likely fall in inflation in coming months may convince members of committee to adjust rates downwards,” Topline Securities CEO Mohammad Sohail stated.
He also added that he believed the key rate could drop by 100 basis points on Tuesday.
