Experts Expect Policy Rate to Remain Unchanged in Upcoming MPC Meeting

The majority of participants of a survey conducted by a brokerage house expect the policy rate to remain unchanged in the upcoming Monetary Policy Committee (MPC) of the central bank, to be held on January 29. According to a survey conducted by Topline Securities, 68 percent of participants expect the policy rate to remain unchanged at 22 percent, while the remaining 32 percent anticipate a policy rate cut. Among those expecting a cut, 5 percent foresee a reduction of 25bps, 18 percent expect a cut of 50bps, 5 percent anticipate a cut of 100bps, and 4 percent of participants expect it to decrease by more than 100bps. No participants expect an increase in interest rates. In response to the second question regarding the timing of the first rate cut in case of no change this time, 56 percent of participants expect the first cut to occur in March 2024, while 18 percent anticipate it in April 2024, 13 percent in June 2024, and 13 percent expect the first cut to be after June 2024. In the latest MPC meeting held on Dec 12, 2023, the State Bank of Pakistan (SBP) decided to keep the policy rate unchanged at 22 percent. Since the last MPC meeting, new developments have taken place which will likely be considered by the central bank committee in the upcoming meeting. These include (1) A rise in CPI inflation for December 2023 to 29.7 percent from 29.2 percent in November 2023, (2) Current Account Surplus of $397 million in December 2023 vs Current Account Deficit of $15 million in November 2023, (3) Decline in local fuel (petrol & diesel) prices, (4) stable International oil prices, and (5) rupee largely remaining stable against the US dollar. Furthermore, cut-off yields in the recent T-Bill auction declined by 50-62bps with yields now standing at 20.49 percent, 20.40 percent, and 20.22 percent for 3, 6, and 12 months, respectively. In response to the question about the expected Policy Rate in June 2024, 60 percent of the participants anticipate the rate to be in the range of 18-20 percent, compared to 54 percent in the last survey. Furthermore, 23 percent of the participants anticipate the policy rate to be in the range of 20-22 percent, a notable increase from the 6 percent reported in the last survey. Additionally, 15 percent expect the rate to be in the range of 16-18 percent, down from 33 percent in the last survey. On the other hand, 2 percent of participants expect the rate to be in the range of 14-16 percent, while none expect it to be below 14 percent or above 22 percent. Considering all the factors mentioned above, Topline said it also believes the SBP will keep the policy rate unchanged at 22 percent in the upcoming MPC meeting.