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Monetary policy: SBP likely to leave rate on hold today

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2 years ago

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  • SBP to issue advance calendar of MPC meetings for first half of 2023.
  • Small section of market participants did not rule out a hike or reduction.
  • Central bank increased rate by 800 basis points in 11 months.

KARACHI: The State Bank of Pakistan (SBP) is scheduled to announce its key policy rate for the next six weeks today and a majority of pundits have developed a consensus that the central bank will leave the rate unchanged at 15% in order to wait for the stabilisation of the economy.

However, a small section of market participants did not rule out a hike of 50-100 basis points or a reduction of 25-50 basis points.

More importantly, Finance Minister Ishaq Dar, who is following his old recipe of running a controlled economy, will like to see an easy monetary policy. The policy rate is a tool for the central bank to create a balance between inflation and economic growth.

The central bank increased the rate by a cumulative 800 basis points in 11 months (September 2021 to July 2022) to 15%.

The Monetary Policy Committee (MPC) maintained the rate in its previous monetary policy unveiled on October 10, 2022.

Most of the pundits aren’t expecting any rate increase because the Ministry of Finance has not indicated anything in the recent T-bill auctions.

The OMO injection is growing and it’s around Rs6 trillion. And SBP has issued recent OMOs at prevailing rates. This implies that SBP might not be thinking of any increase in the rate. The secondary market yields imply the same.

In addition, another positive development since the last MPC meeting has been the decline in international prices of major commodities such as WTI, coal, brent, steel, wheat, and Arab Light. This bodes well for our external account position, hence providing much-needed relief to our trade numbers.

To recall, in the last monetary policy statement too, the MPC stated that the existing rate prudently reflected a balance between maintaining growth post floods and managing inflation.

Moreover, as mentioned in the last statement, SBP is closely monitoring the inflation trajectory. On the inflationary front, the headline inflation continues to remain in the double-digit since November 2021 mainly on the back of an uptick in food and energy prices.

In the month of October, headline inflation clocked in at 26.6% year-on-year. However, on a month-on-month basis, inflation increased by 4.71% mainly due to fuel cost adjustment adjustments and food price hikes.

The central bank is also expected to issue the advance calendar of MPC meetings for the first half of the calendar year 2023 after today’s meeting.

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ADB authorizes a $200 million loan for Pakistan to upgrade its power distribution system.

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A $200 million loan from the Asian Development Bank (ADB) has been authorized to update Pakistan’s power distribution system.

The project intends to improve data management and communication networks and deploy more than 300,000 smart metering equipment.

The project will involve improvements to voltage levels at SEPCO grid stations and monitoring systems for 15,500 transformers. LESCO plans to build or upgrade 25 grid stations with cutting-edge machinery. The initiative will reinforce income security, enhance demand management, and lower power losses, all of which will help to address

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Bulls recover from a sharp fall.

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The benchmark KSE-100 Index hovered at 111,005 points after rising more than 2000 points against the previous closing of 108,896 points, indicating that bullish momentum has returned to the Pakistan Stock Exchange (PSX) a day after a sharp bearish rally.

For the past month or so, the proverbial bulls have been galloping thanks to the cash infusion from the International Monetary Fund’s loan release and more discussions on climate funding.

The impending SBP policy rate-cutting meeting is another factor contributing to the current market mood. On December 16, the Central Bank’s Monetary Policy Committee is anticipated to convene.

Market analysts claim that the government’s decision to form a committee to address the outstanding problem of the Advances to Deposit Ratio (ADR) in the banking industry was the cause of the market’s abrupt collapse. However, the trend didn’t last long.

Following an extraordinary run of gains over the past month or so, the Pakistan Stock Exchange (PSX) reached a historic high of 100,000 points on November 30.

The KSE-100 index achieved one milestone after another in November 2024 amid recurring reports of economic stability, mainly due to the recent loan disbursement by the IMF.

The reassuring agreement with the international lender and Pakistan’s economic czar Muhammad Aurangzeb’s subsequent announcement ruling out a mini-budget boosted investor confidence in recent times.

The State Bank of Pakistan lowered the policy rate by 250 basis points to 15% on November 5.

Inflation dropped more quickly than anticipated and approached its medium-term target range in October, according to the SBP’s relevant committee.

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PSX 100-index reaches an unprecedented peak, exceeding 111,000 points.

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The Pakistan Stock Exchange (PSX) reached the significant milestone of 111,000 points shortly after today’s market opening.

The KSE-100 Index ascended by more than 1,000 points in the initial five minutes of trade, achieving a notable increase of 1,044 points to attain 111,014 points.

The increase indicates heightened investor confidence and a robust market sentiment.

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