Monetary policy announcement on 16th

KARACHI: The Monetary Policy Committee of State Bank of Pakistan (SBP) will meet on Monday, September 16, 2019 at SBP Karachi to decide about Monetary Policy.

Market anticipates central bank to keep key policy rate unchanged at 13.25% in the upcoming monetary policy committee meeting, despite lower headline inflation reading owing to re-basing of consumer price index (CPI).

Analysts’ expectation behind no change in interest rates is predicated upon SBP taking cautious stance as inflation is expected to remain in double-digit mark owing to higher utility rates, re-emergence of food inflation and no significant reduction expected in domestic POL prices as international commodity prices have rebounded after OPEC reiterated its resolve to keep production capped to counter drag on prices arising from trade tensions.

Moreover, lagged impact of hefty PKR devaluation in the last few quarters will also add to cost-push inflation and consequently keep CPI elevated.

On the external front, trade deficit has witnessed significant reduction during the first two months of current fiscal year (-37.6%YoY), primarily due to contraction in import bill (2MFY20: -21.7%YoY).

However despite rise in aggregate revenue collection (2MFY20: +14.5%YoY), fiscal deficit is likely to depict a bleak picture as it is estimated to remain above 8.0% mark (FY19: 8.9% of GDP) during FY20.

Experts estimate SBP to tread cautiously and keep rates unchanged for now whereas central bank is likely to revise down its inflation forecast by 1.0-2.0pps (Jul’19 MPC forecast: 11-12%) owing to revised CPI methodology.

“With regards to impact on Pakistan stock market, with real interest rate inching up further owing to rebasing effect & central bank having already hinted that rates have peaked, we expect reversal of interest rate cycle to begin in 1HFY20 which bodes positive for stock market as lower discount rate not only accentuates equity valuations but also makes fixed income securities (FIS) less attractive, leading to increased flows towards risky/equity investments,” a report issued by Pearl Securities said.

Later on, SBP will issue the Monetary Policy Statement through a press release on the same day.

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