KARACHI: State Bank of Pakistan (SBP) likely to keep policy rate unchanged in upcoming monetary policy, analysts said on Tuesday.
The analysts at Arif Habib Limited said that the monetary policy committee of SBP will convene on Friday (22nd November 2019) to announce the monetary policy for the next two months.
We expect the SBP to keep policy rates unchanged in the upcoming monetary policy statement. Despite significant reduction in yields of 10-yr PIB, T-Bills, and revision on National Savings Scheme (NSS) rates, we see a status quo stance due to the following reasons:
i) Inflation is likely to remain elevated in upcoming months and expected to peak out in January 2020 at 12.50 percent which would reduce real interest rates to 75bps (compared to last 10 months average of ~290bps),
ii) Government is expected to continue attracting foreign investment in T-Bills to increase foreign exchange reserves, and
iii) Monetary easing might have negative repercussions on the current account and exchange rates.
To recall, SBP kept policy rate unchanged in last monetary policy statement (held on 16th September 2019) on account of
i) Inflation forecast which was broadly similar between new and old base (11-12 percent for FY20),
ii) Higher core inflation, and iii) Regular adjustment in utility prices and increase in food prices could pose upside risk to inflation forecast.
