KARACHI: The State Bank of Pakistan (SBP) on Thursday said it will announce monetary policy on October 10, 2022.
The Monetary Policy Committee of SBP will meet on Monday, October 10, 2022 at SBP Karachi to decide about the Monetary Policy. Later on, SBP will issue the Monetary Policy Statement through a press release on the same day.
READ MORE: SBP likely to keep policy rate unchanged at 15%
According to analysts at KASB KTrade the committee to keep the policy rate unchanged at 15 per cent. Our stance is underpinned by: 1) the sharp decline in economic activity after policy reforms, 2) wide-scale flooding further restricting economic activity, and 3) easing external account imbalances.
Recent months have witnessed a sharp decline in economic activity. Fiscal reforms and monetary policy actions have taken a toll on Pakistan’s industrial activity. The first two months of the fiscal year saw cement dispatches fall by 35 per cent YoY, fertilizer off-take decline by 33 per cent YoY, OMC sales dip by 25 per cent YoY, and car sales plummet by 50 per cent YoY.
READ MORE: SBP keeps benchmark rate unchanged at 15% amid rising inflation
The wide-scale flooding has also significantly affected Pakistan’s economic output because of infrastructural damages to the road networks. Overall, we project a 2pps reduction in Pakistan’s GDP growth rate to around 1.5-2.0 per cent in FY23.
Policy reforms under the IMF program have also alleviated Pakistan’s external account imbalances. The first three months of the fiscal year saw the trade imbalance decline by 21 per cent YoY to USD 9.2 billion. Moreover, Sep22’s figure witnessed a decline of 31 per cent YoY to USD 2.9 billion. The recent fall in global commodity prices, particularly oil, has significantly improved Pakistan’s external account prospects. These factors are reflected in the recent trend of the Pak Rupee, which has appreciated by 7 per cent over a 10-day period.
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The past few months have witnessed inflation touch decades-high level, averaging 25 per cent during 3MFY23. Inflationary pressures have largely stemmed from 1) high global commodity prices, 2) higher food prices resulting from supply constraints and flood damages, 3) revision of the domestic petroleum taxation structure and 4) higher electricity tariffs. Real interest rates, in turn, have sustained deep into negative territory, hovering around -9 per cent during the fiscal year. The bulk of the inflationary pressures, however, remains supply-led as core inflation registered at 15.7 per cent in Sep22 (vs. CPI inflation of 23.2 per cent).
READ MORE: Pakistan hikes key policy rate by 125 basis points to 15%
The analysts project inflation to taper off over the medium run as global oil prices continue their descent and the Pak Rupee sustains its appreciation.
Secondary market yields have come off recently given the material slowdown in economic activity and easing external account imbalances. Short-term yields have witnessed a decline of nearly 35bps, suggesting market expectations of peaked interest rates.
