SBP likely to keep policy rate unchanged at 7% State Bank of Pakistan

SBP likely to keep policy rate unchanged at 7%

KARACHI: The State Bank of Pakistan (SBP) has scheduled to announce monetary policy for next two months on Tuesday July 27, 2021.

The present key policy rate is 7 per cent. Analysts believe that the central bank is likely to keep the policy rate unchanged.

The analysts at Arif Habib Limited expect the SBP to keep the policy rate unchanged at 7 per cent in the upcoming monetary policy statement.

To recall, the Monetary Policy Committee (MPC) convened last in May 2021 and noted that further improvement has been witnessed in the overall domestic recovery. The GDP forecast is at 3.94 per cent for FY21.

Therefore SBP might consider keeping the rate unchanged in order to boost domestic demand despite running a negative interest rate of 3 per cent at present. Moreover, the statement also hinted at a very gradual and measured monetary tightening stance, when the need arises.

It also highlighted that core inflation continues to appear restrained and although headline numbers have been inclining, inflation remains manageable. Moreover, inflation, as per SBP, is likely to hover within the 5-7 per cent range in the medium-term. Therefore, it seems likely that the central bank would let the real interest rates remain negative in the medium term.

On the external front, Pakistan closed FY21 with historic high levels of exports (goods) and remittances.

The overall trade too remained high as economic activities ramped up. All said, what could have stayed in green ended in red; Current Account posted a deficit of USD 1.9 billion in FY21, with a huge USD 1.6 billion deficit recorded alone in the month of June 2021.

However, on a YoY basis, current account deficit has come down by 58 per cent during FY21, the lowest deficit after 10-years (Surplus of USD 214 million in FY11).

Total imports increased by 17.6 per cent YoY to USD 61.6 billion during FY21 while total exports increased by 12.8 per cent YoY to USD 31.6 billion during this period. Remittances were a silver lining, reaching USD 29.4 billion by FY21 end (up 27 per cent YoY).

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