Given the recent record declining trend in inflation, economic observers foresee no change in the central bank’s monetary policy for the next couple of months. They believe the State Bank of Pakistan (SBP) would keep the discount rate intact at 9.5 percent thanks to easing inflation, which in May is likely to stand at 0.45% month-on-month (MoM). According to analysts, the recent trend in inflation has the potential to be a “blessing in disguise” for the discount rate. “In the upcoming monetary policy in June ‘13, our stance is an unchanged discount rate,” viewed Abdul Azeem of InvestCap Research. For the month of May ’13, analysts expect inflation to clock in at 0.45% MoM denoting an increase of 5.07% year-on-year (YoY). April also saw a declining trend in inflation with CPI reaching at 5.8% YoY and 7.75% YoY 10MFY13. Therefore, 11MFY13 CPI is expected to level around 7.5% YoY on moving average basis. “The lower CPI expectation is backed by declining POL products prices witnessed during the month,” said Azeem. The analyst expects the recent trend in inflation to be a blessing in disguise for the annual CPI target of 7-7.25%. Going forward, development on the external side such as re-entry into IMF program, amount of Saudi oil facility, privatization of public enterprises and auction of 3G license is expected to impact the interest rates scenario. “Therefore, we expect a clear direction of discount rate to be set post these developments,” said Azeem.
