SBP Likely To Maintain the Policy Rate

Staff Report

The State Bank of Pakistan (SBP) is likely to maintain the policy rate at 22% in the upcoming Monetary Policy Statement (MPS).

The State Bank of Pakistan recently unveiled the Monetary Policy Calendar until June 2024.

We expect the SBP to maintain the policy rate at 22% in the upcoming Monetary Policy Statement (MPS) to be released on January 29, 2024, Sherman Research said in a report.

This will be the 5th time that the SBP will maintain the status quo.

However, on a forward-looking basis, the real interest rate seems to be positive as inflation readings are expected to come down due to a higher base effect.

There remains a concern after a resurgence in inflationary pressures during the last few months amid a consistent hike in utility prices.

Thus, we expect the SBP to take a cautious approach this time as well, as we may see a series of price hikes in utility prices going forward, in line with the IMF’s first review of the 9-month SBA. Our unchanged stance is also supported by the movement in the money market, as 6M KIBOR and 1Y T-bill yields are up 16-37 bps in the last two trading sessions.

We expect January CPI to remain elevated at 27.2% YoY, translating into a negative real interest rate of 5.2%. Moreover, on a monthly basis, the CPI is expected to clock in at 0.94% MoM, with food and the housing index being the main contributors with increases of 1.7% MoM and 1.6%, respectively. On the flip side, the transport index is expected to decline by 0.4% MoM owing to a decrease in fuel prices, down 3% MoM.