Karachi: The State Bank of Pakistan (SBP) is expected to keep the policy interest rate unchanged at 9.75% for the next two months in view of the country's economic condition, high inflation reading and the fifth wave of the COVID-19 pandemic. Financial pundits say.
SBP's Monetary Policy Committee (MPC) will meet today to decide the interest rate for February and March. This will be the first monetary policy meeting of the calendar year 2022.
As per traditional practice, the central bank revises its monetary policy rate up or down or keeps it unchanged depending on the inflation reading and economic activity.
For example, low inflation leads to a reduction in the monetary policy rate primarily to increase economic activity and vice versa. Meanwhile, the rate at a lower level is left unchanged at a higher level to control inflation or to support economic growth.
To recall, the State Bank of Pakistan (SBP) last month aggressively raised the benchmark interest rate by 100 basis points to 9.75% to counter inflationary pressures and keep growth sustainable.
The SBP has raised the key policy rate by a cumulative 275 basis points to 9.75% from September to December 2021 to contain rising inflation and reduce the rising current account deficit, while economic activity remains healthy.
'We expect SBP to keep policy rate unchanged': Arif Habib Ltd.
Arif Habib Ltd., in its pre-monetary policy remarks, said: "We expect the SBP to keep the policy rate unchanged at 9.75% in the upcoming monetary policy statement."
“To recall, the MPC convened the last meeting in December 2021 and reiterated its stance to ensure longevity of growth and combat inflation, while targeting positive interest rates gradually over time.
"Rising inflation is being observed around the world and as a result we have seen central banks in regional markets react to rising consumer prices under pressure from global supply-chain disruptions, costlier energy and food supplies," it said.
The brokerage house noted that with rising cases of the Omicron variant of COVID-19 globally, there is concern for the overall economic recovery across various sectors.
"Pakistan is no exception to the prevalence of the variant and therefore, we believe policy makers can take this factor into account as well and for some time prevent monetary tightening and policy normalization settings over the past few months." decision to assess the effects of added this.
Notably, the central bank said in its final monetary policy statement: "The MPC felt that the ultimate goal of marginally positive real interest rates on a forward-looking basis was now close to being achieved."
'We are going to take a break to see the effects of the tightening': Reza Baqir
SBP Governor Reza Bakir said in an interview with Bloomberg: "We are going to take a pause first to see the effects of the tightening we have already done".
However, some experts feel that there is still room for further hike of 25-50 bps.
The interest rate is a tool available with the central bank to control inflation, remove unnecessary movement of rupee and give direction to the national economy.