SBP likely to further ease monetary policy stance by 100bps: analysts

SBP likely to further ease monetary policy stance by 100bps: analysts

KARACHI: Analysts believe that the State Bank of Pakistan (SBP) likely to further ease the key policy rate by 100 basis points in the upcoming announcement scheduled for May 15, 2020.

Analysts Arif Habib Limited said that the monetary policy committee of SBP will convene on Friday (15th May 2020) to announce the monetary policy for the next two months.

“We expect the SBP to cut policy rates by 100 bps to 8.00 percent in the upcoming monetary policy statement,” the analysts said.

The said that the SBP may reduce the policy rate due to the following reasons:

i) Inflation is likely to continue its downward trend due to massive decline in prices of petroleum products (MoGas and HSD prices reduced by Rs15/liter and Rs27/liter) along with lower demand of perishable items which may reduce inflationary pressure; and

ii) Recent change in macros given outbreak of the Novel Coronavirus which may further induce the SBP  to stimulate the economy by reducing policy rate further.

Moreover, it seems the fixed income market has already incorporated rate cut as treasury bills of 3-, 6- and 12-month are trading at 8.39 percent, 8.00 percent and 7.75 percent which are lower than current policy rate of 9.00 percent.

To recall, Monetary Policy Committee (MPC) convened emergency meeting on April 16, 2020 where the SBP announced a further cut in the policy rate by 200 basis points which is in addition to the 225 basis points cut announced in March, taking the policy rate to a single-digit of 9 percent.

The MPC opted rate cut stance on account of i) to cushion the economic fallout (slowdown in growth and employment) amid Coronavirus, ii) worsening outlook for global and domestic economic activity in the wake of the Coronavirus Pandemic, and iii) SBP forecasting inflation to come down to single digits between 7-9 percent in the next fiscal year.