Topline survey results indicate that 68% of participants expect the State Bank of Pakistan (SBP) to maintain the policy rate at 22% in the upcoming monetary policy committee (MPC) meeting scheduled for Monday. This meeting is crucial as it is the last before the general elections on February 8. The survey suggests that the majority anticipates a status quo in the policy rate due to a less-than-anticipated decrease in inflation.
Muhammad Sohail, CEO of Topline Securities, expressed the belief that the SBP would keep the policy rate steady at 22% based on the survey results. Among the participants, 32% foresee a rate cut, with 5% expecting a reduction of 25 basis points (bps), 18% anticipating a 50 bps cut, 5% predicting a 100 bps cut, and 4% suggesting a decrease of more than 100 bps. Notably, none of the participants expect an increase in interest rates.
Some analysts, such as Shahid Ali Habib, CEO of Arif Habib Limited, speculate that despite the prevailing expectation of an unchanged policy rate, the central bank might opt for a 50 bps cut due to recent reductions in interest rates in Treasury bills (T-Bills). Habib also suggested that the central bank may cut rates further in March 2024, considering an expected decline in inflation.
In the December 2023 meeting, the SBP maintained the policy rate at 22%, marking the fourth consecutive unchanged stance. The upcoming meeting will likely consider factors such as a slight rise in inflation for December 2023 to 29.7%, compared to 29.2% in November 2023. The meeting occurs after Pakistan availed $700 million from a $3 billion Standby Arrangement (SBA) bailout approved by the International Monetary Fund (IMF) in the previous year.
The IMF forecasts a 2% growth in the Pakistani economy for the current fiscal year (FY24), expecting macroeconomic conditions to improve in the second half of the year. In FY23, Pakistan’s GDP contracted by 0.2%, slightly less than anticipated, influenced by the impact of 2022 floods and challenging external conditions. The IMF emphasizes the need for the SBP to maintain a tight stance to address high inflation and ensure a return to more moderate levels.
