KARACHI: The central bank is widely expected to keep the policy rate unchanged at 7 percent for the third time after generous back-to-back reductions during last year’s lockdowns, as the risks to the outlook for both growth and inflation appear balanced, analysts said on Tuesday.
The State Bank of Pakistan (SBP) said the monetary policy committee will meet on Friday (January 22) to decide about the monetary policy. Saad Hashemy, executive director at BMA Capital expects interest rate to remain unchanged. His forecast is based on soft inflation reading during the ongoing month. “Inflation is expected to come on the lower side in January,” Hashemy said.
Pak-Kuwait Investment Company Research Head Samiullah Tariq agreed with the status quo viewpoint and he expects inflation to come down to 6 percent in January. “Until the balance of payments is stable, there’s still fear of Covid-related economic slowdown and globally central banks continue to inject liquidity in financial markets,” Tariq said.
Analysts believe the dovish stance may continue till July with inflation to stay average within the SBP’s target range of 7 – 9 percent during the current fiscal year of 2020/21.
Consumer price index inflation eased to 8 percent in December from 8.3 percent in the previous month. The SBP wants to stick to its growth projection of 1.5 to 2.5 percent in FY2021, a decent recovery from the dizzying 0.4 percent contraction in FY2020 as a result of coronavirus lockdown.
“The Covid-related uncertainty poses both upside and downside risks to the SBP’s macroeconomic projections,” the SBP said in a latest report.
However, the latest SBP surveys reflect well-anchored inflation expectations of both businesses and consumers.
“Current inflation is a cost push led by food shortages and more administrative than monetary phenomena,” said Muzzammil Aslam, chief executive officer of Tangent Capital Advisors. Unchanged policy rate, surplus current account and no government’s borrowing from the SBP will keep inflationary expectations lower, he added.
Time warrants the soft policy as fiscal stimulus can help the economy to recover, according to the analysts.
Source: The News