Outlook 2020: SBP expected to implement expansionary monetary policy in May

January 1, 2020 (MLN): The state Bank of Pakistan is likely to implement monetary easing this year, most probably in March, with policy rate being brought down by as much as 200 basis points as a result of lower inflation figures.

A report compiled by Topline Securities states that the easing will most likely take place in March, but may get delayed till May lest there are any unexpected volatilities in the inflation numbers.

Another major factor clearly pointing towards a rate cut is the PIB auction that was held on December 11, 2019, wherein the rates of 10-year bonds fell beneath 11%. This suggests that the market is anticipating a decline in inflation and interest rates.

However, any emergence of unforeseeable factors such as rise in the prices of food items, international oil prices or gas prices may once again prevent the Central Bank from cutting interest rates.

Going by the expectations put forth by Topline Securities, the inflation numbers are likely to drop to single digits from July onwards. The average inflation figure for FY20 has been forecasted to be 11%.

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