The State Bank of Pakistan (SBP) has kept the interest rate unchanged at 9.75%, it was announced on Tuesday.

Background

In the previous meeting held on January 24, 2022, the Monetary Policy Committee (MPC) of the SBP had decided to keep the policy rate unchanged at 9.75%, stating that several developments suggest demand-moderating measures are gaining traction and have improved the outlook for inflation.

In the Jan-22 meeting, the MPC forward guidance suggested that real interest rates on a forward-looking basis were appropriate and any changes would be relatively modest.

“If future data outturns require a fine-tuning of monetary policy settings, the MPC expected that any change would be relatively modest,” stated the MPS then.

However, since the last MPC, a number of key developments have taken place. The Russia-Ukraine situation has completely changed the commodity landscape, as prices of oil, coal and wheat have risen significantly.

“Crude oil up 50%, coal up 140%, and wheat up 57% since the last MPC,” said Ismail Iqbal Securities in its report.

On the other hand, the government also decided to cut petroleum products' rates and electricity rates by Rs10 per litre and for Rs4 per unit for the next four months as it looked to tame inflation.

Market divided over upcoming monetary policy decision

Given the volatile situation, market participants were previously divided over the decision regarding the key interest rate, also called the policy rate.

Brokerage house, Topline Securities, conducted a poll featuring market participants on expectations over the interest rate. As per the poll, around 53% of the participants believed that there will be no change, whereas 44% believed that there will be an increase in the policy rate. Only 3% of the participants anticipated a cut in the policy rate.

Similar results were found by Ismail Iqbal Securities in its poll survey as well.

About 48% of the market participants expected no change, 33% expected rates to go up by 50bps, 10% expected rates to go up by 25bps. Only 5% of the participants anticipated a policy rate hike of 75bps.

“Considering International Monetary Fund’s (IMF) supportive tone and extremely fluid global situation, we expect the SBP to hold the rates stable in March, 2022 policy meeting,” it said.

Upcoming MPC meetings

As per the schedule, the next meeting (after March 08) will be held on April 19, 2022.

Previous MPC meetings

September 2021: First hike in over 2 years: SBP raises key interest rate by 25 basis points

November 2021: Monetary policy: SBP raises key interest rate by 150 basis points, takes it to 8.75%

December 2021: 3rd successive hike: SBP increases key interest rate by 100 basis points, takes it to 9.75%

January 2022: Monetary policy: SBP keeps policy rate unchanged at 9.75%

Upcoming MPC meetings

April MPC meeting: Tuesday, 19th Apr 2022

June MPC meeting: Friday, 10th Jun 2022

This article was originally published in Business Recorder on March 08, 2022.