The State Bank of Pakistan (SBP) is likely to maintain its policy rates at 7 percent in a board of directors meeting to be held at SBP head office Karachi today (Saturday).
In May 2015, the SBP Board of Directors reduced the policy rate by 100 basis points or 1 percent to 7 percent which was the lowest rate in last 42 years. SBP Governor Ashraf Mahmood Wathra will chair the SBP board meeting at SBP head office Karachi today and announce monetary policy for the period of July-September 2015.
“The central bank may uphold the policy rates for the next period,” said Omair, an analyst at Topline Securities. “The central bank may also cut 50 basis-points if it is necessary,” he added. He said the central bank had already brought the new policy rate at 6.50 percent and the discount rate was at 7 percent which was the lowest rate of Pakistan’s history in last 42 years.
After signing nuclear deal with the United States, the analysts said the petroleum prices were declining in the international markets and touched $50 per barrel in last week and its further downward trend in the near future may affect the inflation rates of Pakistan in 2015-16.
European benchmark Brent crude oil is down 0.6 percent, adding to a sell off of more than 9 percent in July. US benchmark crude oil is down more than 12 percent so far this month. Brent and US crude are down 46 percent and 49 percent, respectively, over the last year. Inflation rates for the month of July may come at 2.35 percent compared to 7.88 percent in the same period last year, the analyst said. It was recorded at 3.16 percent in June 2015.
Going forward, price levels for fiscal year 2015-16 are also anticipated to remain muted where the analyst forecasts headline inflation for calendar year 2015 and fiscal year 2015-16 to average 4 percent and 6 percent respectively, assuming possible fuel price cuts owing to downturns in global oil prices, anticipated gas price increase (excluding domestic consumers), absence of a sharp pullback in global commodity prices, and steady uptick in food inflation.
An analyst at AKD brokerage house said the SBP to keep inflationary expectations in check was likely to maintain its monetary policy. The analyst said low inflation with fiscal year 2014-15 average at 4.5 percent YoY implies +2.5 percent real interest rates, higher than their historical average of +1.7 percent.
Moreover, external account for 2014-15 ended on a positive note (CAD shrinking 27 percent YoY and forex reserve peaking at $18.7 billion) point to SBP considering a 50bps in its MSP review this weekend, the analyst said.
Keeping interest rate unchanged at 7 percent (target rate at 6.5 percent) based on price pressures to build up near the end of calendar year 2015, which should help to keep real interest rate low and increase in M2 growth for fiscal year 2015 at 13.2 percent YoY from 12.5 percent YoY in fiscal year 2014, warranting caution by the SBP to keep inflationary expectations in check.
