60% of Experts Believe the Policy Rate will Remain Unchanged: Survey

The State Bank of Pakistan (SBP) is scheduled to announce a monetary policy statement (MPS) on 24 January 2022. The central bank has so far raised the policy rate by 275bps to 9.75 percent in 1HFY22 owing to the rising current account deficit and inflationary pressures.

In its last monetary policy statement, SBP had highlighted, “MPC felt that the end goal of mildly positive real interest rates on a forward-looking basis was now close to being achieved.” SBP governor, in an interview with Bloomberg, also stated, “We are going to take a pause to first look at the effects of the tightening we have already done.”

To gauge the view on monetary policy outlook, Topline Securities conducted a poll of key financial market participants on expectations over MPS, where a total of 84 participants took part in the poll.

As per the poll, around 60 percent of the participants believe that there will be no change in the policy rate in the upcoming MPS, whereas the remaining participants expect an increase. An 18 percent of participants expect a rise of 25bps, whereas 22 percent of the participants anticipate a rise of 50bps or more.

Most of the participants were of the opinion that we may not see a hike in upcoming MPS however hike in the remainder of FY22 is highly likely.

Around 84 percent of the participants anticipate a further rate increase by Jun 2022, while 16 percent of the participants expect no change in interest rates till Jun 2022.

In response to the question on inflation expectations for FY22, 32 percent of the total participants believe that inflation is likely to average 10-10.5 percent in FY22. On the other hand, 31 percent and 27 percent of the participants expect inflation of 10.5-11 percent and above 11 percent, respectively. The remaining 9 percent of the participants expect inflation to average below 10 percent.

We expect CPI inflation in FY22 to remain at around 11 percent. We believe a future rise of 50-100bps till June 2022 is likely.