SBP unlikely to keep policy rates unchanged The Express Tribune

Pakistan’s central bank is scheduled to meet on Monday (23 November) to determine the benchmark interest rate for sluggish economic activity, high inflation reading and a negative real interest rate at a time of rising Kovid-19 cases in the country.

Traditionally, the State Bank of Pakistan (SBP) revises its policy rate up or down in relation to inflation readings and economic activity, or keeps it unchanged.

Low inflation mainly leads to a decrease in policy rate to accelerate economic activity and vice versa. The rate is left unchanged at higher levels to reduce inflation or support economic growth.

However, the world is quite different today where epidemics in all walks of life are dominating decision making and everything else is no less important.

In addition, Pakistan has invited the International Monetary Fund (IMF) to complete its second review of the country’s economy under a $ 6 billion loan program, released since the outbreak of Kovid-19 in Pakistan in February. is. The fund has asked Islamabad to meet the loan conditions including raising power rates, additional measures to increase tax collection and making the central bank autonomous.

With this in mind, experts said that the Central Bank’s Monetary Policy Committee (MPC) expects the policy rate to remain unchanged at 7%, which could trigger economic activity despite high inflation and Kovid-19 cases. May accelerate.

The Express Tribune conducted a brief survey to find out the policy rates expected of research houses. All nine respondents reported no change in prevailing rate. Earlier, the central bank slashed the policy rate by a cumulative 625 basis points in five amendments between March and June 2020 to support economic activity and help businesses and individuals default on bank loans.

Currently, the real interest rate (benchmark interest rate minus inflation reading) is about 1% negative. Experts said the MPC may consider the prevailing policy rate reasonable for now, noting that demand pressures compared to their spending in the first four months and inflation due to supply shocks in the food chain rather than the government’s higher foreign income Was at a high level. -Oct) of FY 21.

Going forward, external economic indicators may come under pressure to reopen world economies sometime around February 2021. This may encourage SBP to increase the policy rate around that time.

Said Hashmi, executive director of BMA Capital, said, “While inflation remains at around 9%, focus on growth for now, especially with the start of the second wave of Kovid, to leave the rate to the Monetary Policy Committee Should indicate. ” Shazar Capital Research Analyst Muhammad Saeed Khalid stated that “SBP has kept the real interest rate at a negative 1% to reach pre-epidemic growth levels. We believe that until the Kovid-19 vaccine is widely available in Pakistan, the SBP will maintain the strategy. “

Muhammad Sohail, CEO of Topline Securities, said, “Although inflation is rising, SBP may maintain the rate at current levels, given the risks related to Kovid and a stable currency.”

Samiullah Tariq, head of the Pak-Kuwait Investment Company (PKIC), said, “The economy is still recovering from the impact of Kovid-19 and this time is not suitable for increasing the policy rate.”

Also, the government was comfortable on the balance of payments front, so any rate hike was not possible, he said.

Arif Habib Research Head of Research Tahir Abbas said that given the change in macros in the wake of Kovid-19, the challenge of reviving aggregate demand could push SBP to stimulate the economy by not increasing the policy rate.

Muzammil Aslam, CEO of Tangent Capital Advisors, said the economy was still running below capacity and the current wave of food price-driven inflation was not a result of aggregate demand, but was due to several factors, including grasshopper attack, unseasonal rain And global staple food pressures. .

Aba Ali Habib Securities Research Analyst Zubair Jatoi said that considering reducing the negative real interest rate gap, the research house expected the central bank to leave the policy unchanged at 7% in the next two months, leading to the recovery of the epidemic. Economic development will get priority from this. -Hit Economy.

Published in The Express Tribune, 22 Novembernd, 2020.

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