The economic observers foresee another 50 basis pints rate-cut by the central bank on October 5 on the back of easing inflation which is expected to remain in single-digit during the first half of FY13.
The State Bank on Wednesday reported that it would be releasing its monetary policy decision for the next two months on the 5th of next month. The regulator had slashed the discount rate by an unusual 1.5 percent to 10.5 percent from 12 percent in its last monetary policy announcement on August 10. Governor SBP Yasin Anwar had the told the reporters that the move was aimed at giving a relatively higher weight to the state of private sector credit and investment in the economy.
“Inflation outlook has improved with a projection of 10.5 percent for FY13 and loans to private sector businesses have sharply decreased,” noted the governor.
And that the central bank’s projection of the previously backbreaking price hike was ranging on average between 10 and 11 percent for whole of the current fiscal year.
The analysts, however, tend to partly differ with the central bank on the rate of inflation which they say would remain in single digit during the first half. In the second half, 2HFY13, it would jump back to the double digits. Perhaps basing their outlook on that of the SBP, the analysts predict the regulator further reducing the discount rate for the next couple of months.
“A single digit inflation expectation during 1HFY13 coupled with above mentioned falling yields are signaling towards another discount rate cut (50bps) in the upcoming Monetary Policy Statement,” viewed InvestCap analyst Abdul Azeem.
The policy rate, he said, would then stand at 10 percent. The monetary easing was also being expected by the secondary market participants as was evident from the current declining trend of the secondary market yield of different government securities, said the analyst.
About a downward trend in inflation, Azeem said the Consumer Price Index (CPI) during the outgoing month of September was expected to remain in the single digit for the third consecutive month. “During Sep-12 we expect CPI to clock in at 9.02 percent,” said the analyst. However, he said, the prices of commodities like oil and wheat may be the major dampeners as they were likely to push the CPI up by 0.97 percent.
During the month in review, the local motor fuel prices increased by 10.7 percent and kerosene oil prices went northwards by 8.6 percent against the previous month’s prices. Increase in oil prices influence the over all CPI index, as most commodities’ price react to fluctuation in oil prices. In addition, sharp jump of 10.7 percent was witnessed in the price of wheat floor, and is estimated to propel food group containing the highest weight in the CPI basket up by 1.03 percent.
Continuing with the motioned trend of price uptick, the prices of rice, eggs and vegetables also increased by 16.5 percent, 12.57 percent and 8.6 percent, respectively.
On the other hand, yearly moving average basis CPI would remain in double digit staying at 10.43 percent for Sep-12.
The analyst anticipated that low inflation would prevail during 1HFY13 as the high base impact of CPI was expected to come to a halt by December 2012. “In 2HFY13, however, we see inflation to come yet again in double digit,” Azeem said.
Moreover, he said, the upcoming payments of $ 2.3 billion to the IMF were expected to exert pressure on Pak rupee against the greenback. And that any upward movement in international oil prices coupled with flat textile exports are foreseen as another trigger for the widening trade balance that may also negatively impact the stability of rupee.
