Karachi, January 25, 2024 – Topline Research’s recent poll has revealed a prevailing expectation of a status quo in the benchmark policy rate at 22 percent during the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) meeting scheduled for January 29, 2024.
The survey, conducted to assess the monetary policy outlook, gathered responses from key market participants. Of the participants, 68% anticipate the policy rate to remain unchanged at 22%, while the remaining 32% expect a policy rate cut. Among those predicting a cut, 5% foresee a reduction of 25bps, 18% expect a cut of 50bps, 5% anticipate a cut of 100bps, and 4% expect it to decrease by more than 100bps. Interestingly, none of the participants expect an increase in interest rates.
This expectation persists despite a surprising fall in treasury bills yields by 50-62 basis points in the auction held on January 24, 2024.
Regarding the timing of the first rate cut in case of no change this time, 56% of participants expect the initial cut to occur in March 2024, while 18% anticipate it in April 2024, 13% in June 2024, and 13% expect the first cut to be after June 2024.
In the last MPC meeting held on December 12, 2023, the SBP maintained the policy rate at 22%, in line with market expectations. The committee emphasized the positive real interest rate on a 12-month forward-looking basis and anticipated a downward trajectory in inflation to achieve the target of 5-7% by the end of FY25.
Since the last meeting, several developments have unfolded, including a rise in CPI inflation for December 2023 to 29.7%, a Current Account Surplus of US$397 million in December 2023, a decline in local fuel prices, stable international oil prices, and a largely stable rupee against the US dollar.
Notably, cut-off yields in the recent T-Bill auction have declined, standing at 20.49%, 20.40%, and 20.22% for 3, 6, and 12 months, respectively.
Gita Gopinath, the International Monetary Fund’s first Deputy Managing Director, has cautioned central banks against hasty interest rate cuts, advising a cautious approach to avoid fueling market expectations for rapid cuts.
As for the expected Policy Rate in June 2024, 60% of participants anticipate the rate to be in the range of 18-20%, reflecting a slight increase from the last survey. Additionally, 23% expect the policy rate to be in the range of 20-22%, marking a notable increase from the previous survey.
Considering these factors and the overall economic landscape, it is believed that the SBP will likely maintain the policy rate unchanged at 22% in the upcoming MPC meeting.
