Karachi, April 19, 2024 – A comprehensive survey conducted by Topline Securities Limited has dismissed any speculation regarding an increase in the benchmark policy rate by the State Bank of Pakistan (SBP) in the forthcoming monetary policy statement, shedding light on key market sentiments and expectations.
With the next Monetary Policy Committee (MPC) meeting of the SBP scheduled for April 29, 2024, Topline Research embarked on a mission to gauge market participants’ views on the monetary policy outlook and key macroeconomic estimates.
The survey revealed a nuanced perspective among market participants, with 51% of respondents anticipating the policy rate to remain unchanged at 22%, while the remaining 49% forecast a potential policy rate cut. Remarkably, none of the participants expect an increase in interest rates, signifying a consensus on maintaining the status quo or potential easing measures.
Delving into the expectations of those anticipating a rate cut, 2% foresee a reduction of 25 basis points (bps), 12% expect a cut of 50 bps, 29% anticipate a cut of 100 bps, and 6% envision a decrease by more than 100 bps. These projections indicate a cautious optimism among market players regarding potential monetary policy adjustments.
In contrast to the current sentiments, the previous monetary policy survey conducted on March 13, 2024, revealed a slightly higher proportion of respondents (55%) expecting the policy rate to remain unchanged at 22%, while 45% anticipated a rate cut. Among those anticipating a cut, 2% foresaw a reduction of 25 bps, 10% expected a cut of 50 bps, 24% anticipated a cut of 100 bps, and 9% of participants expected a reduction by more than 100 bps.
Reflecting on the timing of the first rate cut in case of no change in the upcoming MPC meeting, 71% of participants anticipate the first cut to occur in June 2024, while 18% foresee it in 3Q2024, and 11% expect it in 4Q2024.
During the latest MPC meeting held on March 18, 2024, the SBP opted to maintain the policy rate unchanged, citing the need for a cautious approach amid declining inflation trends. The committee highlighted the importance of sustained fiscal consolidation and timely realization of planned external inflows to support the ongoing monetary stance aimed at bringing inflation down to the target range of 5-7% by September 2025.
Looking ahead, analysts anticipate the policy rate in December 2024 to range between 16-18% for 41% of participants, while 51% anticipate it to fall within the range of 18-20%. Furthermore, 4% expect the rate to be in the range of 14-16%, and another 4% foresee it to be in the range of 20-22%. Notably, no participants expect the rate to fall below 14% or exceed 22%.
Recent developments, including a decline in CPI inflation, stable SBP FX reserves despite Eurobond payments, and Pakistan’s current account surplus in February 2024, have shaped market expectations. However, analysts remain cautious, citing risks such as international price fluctuations, delays in IMF fund disbursement, and potential currency pressures.
While encouraging economic trends have emerged, analysts anticipate the SBP to maintain a watchful stance and adopt a ‘wait and see’ approach until inflation trends stabilize, possibly keeping the policy rate unchanged at 22% in the upcoming MPC meeting.
