• Market talk suggests policy rate will remain unchanged at 15%.
• SBP had increased policy rate by 800bps since Sept 2021.
• Today’s MPC meeting is first after appointment of new SBP governor.

KARACHI: The State Bank of Pakistan (SBP) is expected to maintain the benchmark interest rate at 15% in its monetary policy statement (MPS) being announced today (Monday).

The central bank is highly likely to maintain the interest rate — it raised the rate by 125 basis points in its last meeting in July to 15%, the highest since November 2008 — despite the fact that inflation has remained elevated. So the status quo will continue to support economic recovery in line with the coalition government’s policies.

Financial pundits and market players have developed consensus that the central bank will maintain the rate at the current level of 15% for the next seven weeks.

The central bank has cumulatively increased the rate by 800 basis points since September, 2021 to control inflation and narrow the current account deficit.

Commercial banks, however, expect that the SBP’s monetary policy committee (MPC) will increase the rate – probably by 100 basis points – considering the weekly inflation has hit a record high of over 42% in the week ended on August 18 and the benchmark consumer price index inflation spiked to a 14-year high at around 25% in July.

The inflation is anticipated to increase further amid a continuous increase in energy prices in the country, while the interest rate and flexible rupee-dollar parity are the two major tools available with central banks all over the world to control inflation reading and give a direction to the economic trajectory in their respective countries.

Today’s MPC meeting is the first after the appointment of the new governor Jameel Ahmad, however, it is expected that today’s meeting will likely be chaired by deputy governor Syed Murtaza.

In the last MPS forward guidance released on July 7, the central bank had mentioned that the MPC will carefully monitor developments affecting medium-term prospects for inflation, financial stability, and growth and will take appropriate action to safeguard them.

Meanwhile, the MPS is seen as a compass for the market this week, provided the International Monetary Fund’s loan programme doesn’t hit any bump in the road, while a rupee rout can also give investors cold feet.

“Key events to look out for include the monetary policy meeting, scheduled for Monday, August 22, which is likely to dictate the direction of the market, where we expect no change in the interest rates,” said a weekly analysis report of the Air Habib Ltd.

However, AKD research expects the policy rate to rise by 50-100bps.