State Bank of Pakistan to announce monetary policy, Interest rates to be hiked: Sources

State Bank of Pakistan to announce monetary policy, Interest rates to be hiked: Sources

KARACHI: State Bank of Pakistan (SBP) is expected to increase 50bps (bps) to 7 per cent in discount rates in the Monetary Policy due to be announced today, market analysts believe.

According to a press release issued on Thursday, SBP Governor Tariq Bajwa will unveil the Monetary Policy Decision at a press conference later today. The press conference will be held at SBP Learning Resource Centre Auditorium, SBP Head Office, I.I. Chundrigar Road, Karachi.

Al-Habib Capital Market Analyst Hasnain Imam anticipates that the SBP Monetary Policy Committee (MPC) may raise its policy rate by 50bps to 7 per cent. The central bank may build the case for this monetary policy stance on rigid high Consumer Price Index (CPI) (NFNE). Meanwhile, broad money (M2) growth slowing due to deteriorating NFAs of the banking system and rising current account deficit (CAD) may induce the central bank to adopt an accommodative monetary policy and tight monetary policy to help manage aggregate demand.

CPI (General) has remained modest at 3.92 per cent during 2017-18 but has begun to show signs of increase since April 2018 wherein it inched up to 3.68 per cent, rising to 4.19 per cent in May 2018 and surging to 5.21 per cent in June 2018 on the back of increase in food & non-alcoholic beverages segment of CPI (General) inflation.

On the contrary analysts believe that CPI’s (NFNE) inflexibility is more worrisome which stood at 7 per cent during both April 2018 and May 2018 inching up to 7.10 per cent in June 2018 despite a 50bps hike in policy rate in May 2018 indicating rising aggregate demand and inflation expectations within the economy stemming from forecasted surge in food and fuel prices due to recent, depreciation of Pak Rupee and increasing prices of domestic petroleum products.

The analyst said Pakistan’s CAD stood at $15.961 billion during eleven months of 2017-18 against $11.140 billion last fiscal year, up by a whopping 43 per cent. Nonetheless, analysts foresee Pakistan’s 2017-18 CAD scaling to $17.5 billion.