SBP likely to maintain policy rate at 21%

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By MG News | June 12, 2023 at 10:49 AM GMT+05:00

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June 12, 2023 (MLN): The State Bank of Pakistan (SBP) will likely maintain the policy rate at 21% in today’s Monetary Policy Committee (MPC) meeting, as the headline inflation is expected to exhibit a downward trend from June onwards as high base effect kicks-in, according to the latest poll conducted by Mettis Link News.

This move is likely to provide some stablity to borrowers and businesses who were facing volatile and high interest rates and borrowing costs.

Moreover, the stable cut-off yields in the recent T-Bills auction also indicate that the market expects the policy rate to remain the same.

Most experts are in consensus on the rate pause, as they welcome the central bank’s decision to support the investment-friendly budget and growth prospects, despite the persistent inflationary pressures and currency depreciation.

In the last MPC meeting in April 2023, SBP raised the policy rate by 100 bps to 21% with the aim of containing the impact of elevated domestic inflationary pressure, so as to embark on a path of sustainable recovery.

It is important to note that Pakistan is currently experiencing one of the most intense and aggressive rate hike cycles in over three decades! In just 20 months, the SBP has hiked rates by a whopping 1400 basis points, making it a period of monetary tightening unlike any other in recent history.

Inflation hit 38% in May 2023, the highest since 1965 fueled by rising commodity prices, a weakening currency, and depleting foreign exchange reserves.

In the coming months, headline inflation is anticipated to recede primarily as a result of the high base effect coming into play. According to analysts' estimates, the CPI is likely to average around 29% YoY in FY23.

CPI chart June 2022 - May 2023:

Copyright Mettis Link News 

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