SBP to announce monetary policy on March 29; experts expect 75bps increase

KARACHI: State Bank of Pakistan (SBP) will announce Monetary Policy for the next two months on Friday, March 29, 2019, a statement said on Wednesday.

In the last monetary policy announcement, the central bank increased the policy rate by 25 basis points to 10.25 percent effective from February 01, 2019.

The monetary policy committee (MPC) decided to increase the rate on the basis of: (i) the fiscal deficit is yet to show signs of consolidation despite a reduction in PSDP spending; (ii) although a gradual improvement in current account deficit is visible, it remains high; (iii) a marked shift in the pattern of government borrowing from scheduled banks to SBP entails inflationary concerns; and (iv) even as stabilization measures gradually work through the economy, underlying inflationary pressures persist.

Analysts at Arif Habib Limited said that the SBP to increase policy rate by 75 basis points to 11.00 percent (Discount rate 11.50 percent) in the upcoming monetary policy statement.

This might be the last rate hike before Pakistan enters the International Monetary Fund (IMF) program whereas inflation will remain moderate after making its peak in the ongoing month.

The monetary tightening is expected on the back of i) rising inflationary pressure due to recovery in prices of petroleum products and essential food items, ii) mounting Fiscal deficit despite sharp cut in PSDP and rationalization of tariffs and duties, and iii) narrowing real interest rate as it declined to 1.6 percent compared to last four year average of 2.85 percent.

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