SBP set to issue monetary policy statement on April 04

The State Bank of Pakistan (SBP) is set to issue a monetary policy statement on April 4, 2023.

The announcement is expected to be under pressure, as the International Monetary Fund (IMF) has reportedly demanded that the policy rate be brought in line with the inflation rate.

In a poll conducted by Topline Research to gauge market participants’ views on the monetary policy outlook, the majority (92.5%) of participants expect a policy rate increase of at least 100 basis points.

Of those, 63% expect a 200 basis point increase, and 5% expect a 300 basis point increase. Only 8% of participants expect no change in the policy rate.

In terms of the IMF’s 9th review, 15% of participants do not expect a staff level agreement to be reached. Only 16% of participants expect an agreement within the next 2 weeks, while 31% expect an agreement in 2-4 weeks, and 37% expect an agreement after 4 weeks.

Looking ahead, 8% of participants anticipate the policy rate to be above 22% in March 2024, while 19% expect it to be between 20-22%, and 25% expect it to be between 18-20%.

On the other hand, 48% of participants expect the policy rate to be below 18%, with 18% of participants expecting it to be below 16%.

The CPI increased by 31.5% YoY in February 2023 compared to 27.6% in January 2023, with urban core inflation at 17.1% in February 2023 compared to 15.4% in January 2022, and rural core inflation increasing to 21.5% in February 2023 compared to 19.4% in January 2023.

March 2023 CPI is expected to show a YoY increase of more than 34%. Given these factors, Topline Research also expects a 100-200 basis point increase in the upcoming MPC meeting, considering higher-than-expected inflation and rupee devaluation against the US dollar, with CPI inflation in FY23 estimated to average around 28%.

The SBP also expected average inflation for FY23 to be in the range of 27-29% in its MPC on March 02, 2023.