Today’s monetary policy: The SBP is anticipated to keep the interest rate unchanged.
Karachi: Pakistan’s central bank, the State Bank of Pakistan (SBP), will meet today (March 8) to examine economic developments and declare its monetary policy.Although conflicting economic indications signal that the worst is yet to come, the market has agreed that the policy rate will remain at 9.75 percent for the next month.Although the likelihood of no change in the rate does not rule out the possibility of another rate hike in the future, most experts believe there is still room for another walk of 50-100 basis points (bps) later.The interest rate and the variable rupee-dollar parity are the two primary weapons that central banks worldwide use to control inflation and steer the economic trajectory of their countries.From September to December 2021, the central bank lifted the key policy rate by 275 basis points to 9.75 percent to contain increasing inflation and narrow the growing current account deficit while economic activity remained strong.The Monetary Policy Committee (MPC) meeting today is the first since the outbreak of the Ukraine-Russia crisis, which is threatening the economy. Suppose economic indicators and the geopolitical environment continue to deteriorate despite recent policy rate hikes and other measures. In that case, one could wonder why the central bank is unlikely to raise the rate today.There are a few options for answering the question. First, the central bank’s forward guidance in its monetary policy statement (MPS) indicates that the key interest rate will remain unchanged in March.“Current real interest rates on a forward-looking perspective are appropriate to steer inflation to the medium-term range of 5-7 percent, support growth, and ensure external stability,” the central banks said in their most recent MPS future guidance, announced on January 24. If further data outturns necessitate fine-tuning of monetary policy settings, the MPC expects such changes to be minor.”However, some analysts feel significant developments have occurred since the last MPS. New data is now available that the central bank would likely include in the future MPS.Since the last MPC, the Russia-Ukraine scenario has drastically altered the commodity landscape, with crude oil up 50%, coal up 140%, and wheat up 57%.“We feel, however, commodity prices have lately risen sharply, bearing in mind SBP’s focus to continue economic recovery and its last forward-looking advice, we predict no change in next MPS,” Topline Securities said in its interest rate forecast. “The decision not to raise petroleum prices until June 2022 may also bring some inflation relief,” the report stated.However, the trading house stated that a rate hike is likely at the next meeting, slated for April 19.“In light of increased commodity costs and other recent developments, we expect some modifications in advance guidance,” it stated.
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