State Bank of Pakistan to announce new monetary policy: Report…

The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is to meet today, Monday 29th July 2024 with majority of the market for considering another cut in the key policy rate. This would be the first policy meeting following the signing of a staff level agreement with the IMF and the federal budget.

With the rate of inflation declining considerably and the commencement of policy rate cuts by central banks worldwide, the majority of the markets expect Pakistan’s central bank to relax its various monetary policies.

Previously, the SBP decided to reduce the key policy rate by 150 basis points (bps), taking it to 20.5 percent. This was the central bank’s first rate cut in the last four years.

After a much needed bailout supported by the World Bank, the last two years had been quite tough for the Pak economy as various reforms were made to improve the country’s financial position from a strained position. Even after this, the Islamic Republic of Pakistan led by the Shehbaz Sharif government requested a new longer term bailout after meeting the criterias of the International Monetary Fund.

The authorities reached an agreement earlier this month where the IMF would hand over a record sum of $7 billion over a period of 37 months for improving stability and growth of the nation.

Expectation of Analysts;

Market experts in Pak were of the view that the Central Bank would opt for easing of monetary policies amid a downward trajectory of the inflation rate. Developments such as fall in CPI inflation, manageable current account, stable currency rates, and improved forex reserves were the factors that could have influenced the rate cut.

Reports by brokerage house Arif Habib Limited that deals in the Pakistan Stock Exchange cited a poll result that suggested 55.7 percent respondents expect the Central Bank of Pak to ease the monetary policy. “We are expecting a 100 bps cut that lowers the policy rate to 19.5 percent, a level that was last observed in 2023”, AHL reported.

Another brokerage house Topline Securities also suggested a similar observation. Shankar Talreja reported, “We are of the view that SBP can lower the rate by 100 bps to 19.5 percent in its upcoming meeting due to receding inflation”.

Previous MPC Meeting;

In the previous meeting on June 10, the MPC had raised its key interest rate by 150 bps from an all time high of 22 percent, in line with market expectations. The Monetary Policy Commission had discussed key developments, like the Pakistani Rupee  depreciating a marginal 0.02 percent while petrol prices increased nearly 3 percent while the CPI based inflation is at 12.6 percent according to the Pakistani Bureau of Statistics (PBS).