Karachi, October 20, 2023 – The majority of respondents in a recent survey have expressed their belief that the State Bank of Pakistan (SBP) is likely to keep its benchmark policy rate unchanged at 22 percent in its next review.
The SBP’s next Monetary Policy Committee (MPC) meeting is scheduled for October 30, 2023.
To gauge the outlook on monetary policy, Topline Research conducted a poll among key market participants to gather expectations regarding the policy rate and key macroeconomic estimates.
According to the survey’s findings, 70 percent of participants anticipate that the policy rate will remain unchanged at 22 percent. Additionally, 16 percent of respondents expect a reduction in the policy rate by 25 to 100 basis points, while 11 percent foresee a more significant decrease of over 100 basis points. Only 3 percent expect the policy rate to increase by over 100 basis points, with no respondents anticipating an increase between 25 and 100 basis points.
In the latest MPC meeting held on September 14, 2023, the State Bank of Pakistan (SBP) decided to maintain the policy rate at 22 percent, which was contrary to market expectations. The SBP Governor cited the expectation of keeping real interest rates in positive territory as a key factor in this decision.
Since the last MPC meeting, several developments have occurred, which are likely to be considered in the upcoming meeting. These include a Current Account Deficit of $8 million in September 2023 (compared to $164 million in August 2023), a decline in local fuel prices, stable international oil prices at around $90 per barrel, and a 7 percent appreciation of the Pakistani Rupee against the US dollar.
In light of these factors and the expectation of decreasing inflation, cut-off yields in the recent Treasury Bill auction have decreased by 30-45 basis points, with cut-off yields now standing at 22.2 percent, 22.39 percent, and 22.4 percent for 3, 6, and 12-month maturities, respectively. Furthermore, secondary market yields on 6-month T-Bills and 3-year PIBs have declined by 239 and 280 basis points, respectively, since September 14, 2023.
In response to a question regarding the expected policy rate in June 2024, 41 percent of participants anticipate a range of 16-18 percent, while another 41 percent expect a range of 18-20 percent. Only 8 percent of participants foresee a range of 20-22 percent, with 5 percent expecting it to be in the 14-16 percent range and 5 percent predicting a rate below 14 percent.
Regarding the expected average inflation for FY24, 35 percent of participants anticipate inflation in the range of 20-22 percent, while 30 percent expect it to be between 22-24 percent. Additionally, 16 percent of respondents foresee inflation between 24-26 percent. On the other hand, 16 percent of participants expect inflation to fall below 20 percent, and 3 percent predict inflation above 26 percent.
The survey also inquired about the expected PKR/USD parity in the interbank market by June 2024. A total of 32 percent of participants anticipate a range of Rs 280-320, while another 32 percent expect it to be around Rs 300-320. Furthermore, 14 percent anticipate a range of Rs 320-340. Conversely, 19 percent expect it to be below Rs 280, and 3 percent foresee it rising above Rs 340.
In conclusion, the survey results, in conjunction with various economic factors, suggest that the SBP is likely to maintain the policy rate at 22 percent in the upcoming MPC meeting.
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