Monetary Policy Survey: 51% Foresee No Change, 49% Anticipate a Rate Cut

Staff Report

The Monetary Policy Survey unveils a divided sentiment, with 51% anticipating no change and 49% expecting a rate cut, highlighting the uncertainty surrounding future policy decisions.

SBP’s next Monetary Policy Committee (MPC) meeting will be held on April 29, 2024.

To gauge the view on monetary policy outlook, Topline Research conducted a poll of key market participants on expectations over policy rate and key macro estimates.

According to the survey, 51% of participants expect the policy rate to remain unchanged at 22%, while the remaining 49% anticipate a policy rate cut. No participants expect an increase in interest rates.

Among those expecting a cut, 2% foresee a reduction of 25bps, 12% expect a cut of 50bps, 29% anticipate a cut of 100bps, and 6% of participants expect it to decrease by more than 100bps.

In the last monetary policy survey conducted on Mar 13, 2024, 55% of participants expect the policy rate to remain unchanged at 22%, while the remaining 45% anticipate a policy rate cut.

Among those expecting a cut, 2% foresee a reduction of 25bps, 10% expect a cut of 50bps, 24% anticipate a cut of 100bps, and 9% of participants expect it to decrease by more than 100bps.

In response to our second question regarding the timing of the first rate cut in case of no change this time, 71% of participants expect the first cut to occur in June-2024, while 18% anticipate it in 3Q2024, and 11% expect the first cut to be in 4Q2024.

In the latest MPC meeting held on Mar 18, 2024, SBP decided to keep the policy rate unchanged.

While arriving at the decision, MPC noted that inflation, in line with earlier expectations, has begun to decline noticeably from 2HFY24.

However, MPC observed that despite the sharp deceleration in February, the level of inflation remains high and its outlook is susceptible to risks amidst elevated inflation expectations. The SBP increases the Policy Rate by 100bps

This warrants a cautious approach and requires continuity of the current monetary stance to bring inflation down to the target range of 5-7% by Sep-2025.

The committee reiterated that this assessment is also contingent upon continued targeted fiscal consolidation and timely realization of planned external inflows.