Monetary policy due on March 8

KARACHI: State Bank of Pakistan (SBP) is expected to leave its benchmark interest rate steady at a meeting next week, despite challenges from balance of payments amid surging global commodity prices, analysts said.

The Monetary Policy Committee (MPC) of the central bank will meet on Tuesday, March 8, 2022, to decide about the monetary policy, it said in a statement on Friday.

“This will be an important MPS [monetary policy statement] decision as the market will keenly follow policy direction by the SBP when the country is currently faced with several economic challenges,” analyst at Topline Securities said.

In its last monetary policy statement on January 24, 2022, the SBP had kept the policy rate unchanged at 9.75 percent, stating that the decision was in line with previous forward guidance provided by the SBP and keeping in view the consideration for economic recovery.

“We believe, though commodity prices recently have risen sharply but keeping in view the SBP’s focus to sustain economic recovery and its last forward looking guidance, we anticipate no change in upcoming MPS. The decision to not increase petroleum prices till June 2022 may also provide some cushion to the inflation outlook,” the analyst said.

“Keeping in view the latest developments, the SBP may also likely revise its forecast for current account deficit (projected by SBP at 4 percent of GDP in FY2022) and inflation (9-11 percent in FY2022),” he added.

The SBP in its last MPS stated “current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5-7 percent, support growth, and maintain external stability. If future data outturns require a fine-tuning of monetary policy settings, the MPC expected that any change would be relatively modest.”

On Russia-Ukraine conflict, commodity prices have seen a sharp increase, which has consequences on inflation and current account outlook. International Arab light oil prices have increased by over 21 percent since January, he said.