KARACHI: The State Bank of Pakistan (SBP) may increase key policy rate by 100 basis points in the upcoming monetary policy announcement (MPS) on May 23, 2022.
Topline Research conducted a poll from leading fund managers to assess their views on country’s economic outlook. Questions were asked on interest rate, inflation, currency, GDP growth and current account deficit outlook.
READ MORE: SBP may raise policy rate by 100bps to 13.25%
The SBP in the last monetary policy announcement on April 7, 2022 raised the policy rate by 250 basis points to 12.25 per cent.
Since the last Monetary Policy Statement (MPS) on April 7, 2022, secondary market rates including Treasury-Bill/Kibor rates have gone up by around 200 basis points due to uncertainty on removal of subsidies on petrol/diesel and continuation of IMF program.
It will also be interesting to see SBP’s stance as this will be the first monetary policy statement (MPS) after recent change in government and appointment of Dr. Murtaza Syed as new acting Governor SBP.
Interestingly in the latest T-Bill auction, cut-off yields declined for the first time after almost an year declining by 5-29bps with 3/6/12 T-Bills yields clocking in at 14.49 per cent, 14.70 per cent, and 14.75 per cent respectively.
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As per the survey results, around 54 per cent of the participants expects an increase of 100bps, 14 per cent of the participants anticipate an increase of 150bps and 11 per cent expect an increase of 200bps or more. On other hand, only 13 per cent participants expect increase of 50bps while 9 per cent expect no change.
Participants remained divided on policy rate expectations by end of fiscal year 2022/2023. About 27 per cent of the participants expect policy rate to close at 13 per cent by end of fiscal year. About 41 per cent of the participant expect it to above 13 per cent while 32 per cent anticipate it to be below 13 per cent.
In terms of currency outlook, 39 per cent of the participants expect PKR/USD to close above 205 by FY23 end. About 9 per cent believe it will remain in the range of 200-205 by FY23 end. About 23 per cent expect it to close in between 195 to 200 while the remaining project it to be below Rs195.
About 27 per cent of the participants are expecting inflation of 13-14 per cent in FY23, 16 per cent expect it to be between 14-15 per cent, 4 per cent anticipate it to be above 15 per cent. The remainder of them are eyeing an inflation of lower than 13 per cent in FY23.
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In terms of GDP growth, 7 per cent of the participants thinks that GDP growth will be below 3 per cent, 32 per cent of them expects it to be between 3-3.5 per cent, 23 per cent of the participant project it to be 3.5 per cent-4.0 per cent. The remainder of them anticipate it to be above 4 per cent.
Participants remained divided on the expectations of current account deficit forecast for FY23 as 46 per cent participants expect current account deficit to be in the range of US$12-15bn while 18 per cent participants anticipate it to above US$15bn. The remainder of them expect it to be below US$12bn.
Pakistan is currently facing tough economic times as depleting foreign exchange reserves, rising fiscal deficit amid huge petrol/diesel subsidy and indecisiveness by the new government on key economic measures is exacerbating economic issues.
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It will key for government to take the required reform steps including removal of subsidy on petrol/diesel, measures to curb imports & improve tax collection. This will pave way for the resumption of IMF program which currently remain stalled and will result in dollar flows that could ease pressure on currency and foreign exchange reserves going forward.
Given concerns highlighted above along with rising inflation and weakening currency, we also anticipate SBP to raise the policy rate by 100bps.
