State Bank of Pakistan Likely to Maintain Policy Rate Amidst Easing Inflation

The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is expected to uphold its current policy by keeping the interest rate unchanged at 22% in the upcoming meeting, reflecting a positive shift in market sentiment. In light of decreasing food and energy prices, inflation expectations have eased.

To assess market sentiment, Mettis Global News conducted a survey on the forthcoming central bank's monetary policy decision, scheduled for January 29.

Survey results suggest a prevailing status quo, with 57.69% of participants anticipating the SBP to maintain the policy rate at 22%. This marks a notable decrease from the previous MPC survey, where 74% expected a status quo.

Conversely, 26% foresee a 100 basis points (bps) rate cut, and 10% expect a 50 bps cut.

The survey unveils a growing inclination among market participants toward rate cuts, particularly in the first quarter of 2024. A majority (43.3%) predicts rate cuts starting in the first quarter of FY24, with 25% expecting a cut in the next meeting. Another 27% anticipates rate cuts beginning in the second quarter of FY24.

A consensus among participants indicates that the policy rate will likely fall within the 15-19% range by the end of FY24, with 60.6% expecting a cumulative cut of 300-700 bps, despite persistent sticky inflation at 29.7% in December.

Keywords: Monetary Policy Committee, State Bank of Pakistan, interest rate, inflation expectations, market sentiment, survey results, rate cuts, fiscal year 2024, inflation forecast, International Monetary Fund, downside risks, external financing, monetary stance, real policy rate.

Inflation Forecast:
Projections suggest that with a 0.5% month-over-month (MoM) inflation rate, annual headline inflation will reach around 22% by February, dropping below 16% by June 2024. Even with a 1% MoM inflation rate, significantly lower than the 12-month average of 2.2% MoM, real interest rates may not turn positive until March 2024.

Keywords: Inflation forecast, month-over-month inflation rate, headline inflation, real interest rates.

Inflation Easing, but Challenges Persist:
The International Monetary Fund (IMF) has revised down inflation forecasts to an average of 24% in FY24, citing easing food and energy prices. Challenges, however, persist, with high external financing risks and potential delays in planned financing posing threats to the government's program. The IMF emphasizes the importance of a tight monetary stance to reduce inflation and support external sector rebalancing.

Keywords: International Monetary Fund, inflation forecasts, external financing risks, monetary stance, geopolitical conflicts, exchange rate, positive territory.

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