CITI Bank expects SBP to cut interest rate by June

April 23, 2024 (MLN): The State Bank of Pakistan is likely to delay the rate cut until June and maintain the current monetary policy rate of 22% to gain more clarity on how the budget for fiscal year 2024-2025 (FY25) might impact inflation, according to Citi Bank.

The primary U.S. banking subsidiary of the multinational financial services company Citigroup has further said that Pakistan is expected to opt for the largest loan program with the International Monetary Fund (IMF) soon.

As a result, the central bank would need to remain cautious as the government is negotiating the terms of a new program with the IMF.

Citi Bank projects that consumer prices are expected to maintain a downward trajectory due to tight monetary policy and an improving agriculture supply.

Citing the pressure of rising oil prices due to tension in the Middle East, the State Bank of Pakistan adopted a hawkish tone in March to assess the impact of price adjustments, it added.

Citi Bank cited that there is still some backlog of dividends and profit repatriation in the ongoing fiscal year as Foreign investors ' repatriation of profit and dividends rose 3.37x YoY to $759.2 million compared to $225.4m worth of repatriation in the same period last year.

On a positive end, it highlighted that all backlog pressure shall disappear by the end of the fiscal year 2024.

Regarding external financing for the upcoming fiscal year, the bank said that financing needs in FY25 will be similar to that in FY24 out of which 50% will be rollover while the government will have to arrange 50% of financing.

The institution's projections for Pakistan extend towards the current account balance as per which the deficit will be 1.5% of the GDP in FY25, which is anticipated to align with the expected GDP growth of 2-3%.

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