Saturday, October 21, 2023
No change is expected at the upcoming policy review meeting.
70% of participants expect the key interest rate to remain unchanged.
The rate remains unchanged from July 2023.
KARACHI: The State Bank of Pakistan's key interest rate is likely to remain unchanged at 22% this month as inflation moderates on lower fuel prices and a stronger rupee, The News reported on Friday, citing a brokerage survey.
In an effort to control rising inflation in the country and promote external balance, the SBP has increased its key interest rate by a cumulative 1,500 basis points from October 2021. However, from July 2023, the rate remained at the same level.
A survey of analysts and financial market participants by brokerage Topline Securities expected no change in the benchmark rate at the upcoming policy review meeting, scheduled for Oct. 30.
"At least 70% of participants expect the base rate to remain unchanged at 22%. While 16% of participants expect the base rate to fall by 25 bps to 100 bps and 11% of participants expect it to fall by more than 100 bps," Topline Securities said in the appeal to your research.
"We also believe that the SBP will keep the key interest rate unchanged at 22 percent in the upcoming meeting." Many analysts predict that the SBP has hiked rates and will remain on hold until at least March 2024.
There have been new developments since the last SBP Monetary Policy Committee (MPC) meeting held on September 14. These are likely to be discussed by the MPC in the upcoming meeting.
These include a sharp decline in Pakistan's current account deficit from US$164 million in August to US$8 million in September, an average 11% decline in local fuel prices (diesel and petrol), stability in international oil prices at around US$90 per barrel, and a 7% increase rupee against the US dollar.
Cut-off yields in the latest Treasury bill auction fell by 30-45 basis points (bps) on expected decline in inflation. Currently, three-, six-, and twelve-month marginal returns are 22.2%, 22.39%, and 22.4%.
In addition, secondary market yields on three-year Pakistan Investment Bonds and six-month T-bills declined by 280 basis points and 239 basis points, respectively, since September 14.
Stabilization measures began to bring results. Inflation eased to 31.4% in September 2023, after peaking at 38% in May 2023, and is expected to continue its downward trajectory in the coming months, while the external account has improved considerably and foreign exchange reserves are building. SBP statement issued last week.
The SBP assesses that real interest rates will turn significantly positive on a forward-looking basis as inflation is expected to decline significantly during the second half of this fiscal year.
