Market watchers are split on the State Bank of Pakistan’s (SBP) next move, with a survey by Topline Securities revealing a close call between a rate cut and maintaining the status quo at the upcoming Monetary Policy Committee (MPC) meeting on April 29.
The survey shows a near-even divide, with 51% of respondents expecting no change and 49% anticipating a rate cut. Notably, no increase in interest rates is foreseen.
Cut predictions vary, with 2% expecting a 25 basis point (bps) reduction, 12% for 50bps, 29% for 100bps, and 6% for a cut exceeding 100bps. This represents a slight shift from the previous survey in March, where 45% anticipated a cut.
If the rate holds this time, 71% of participants believe a cut will come in June, followed by 18% in Q3 2024 and 11% in Q4. In the last MPC meeting on March 18, the SBP maintained the policy rate at 22%, citing high inflation risks despite a downward trend. They emphasized achieving the target inflation range of 5-7% by September 2025, subject to fiscal consolidation and external inflows.
Regarding December 2024 rates, expectations range from 16-22%, with most participants (51%) predicting a rate between 18-20%.
Several recent developments could influence the SBP’s decision:
- CPI inflation dropped from 23.1% (Feb) to 20.7% (Mar).
- Foreign exchange reserves remained at $8 billion despite a Eurobond payment.
- Pakistan’s current account shifted to a surplus of $128 million (Feb) from a deficit in January.
However, countervailing factors exist:
- Rising international oil prices.
- Local fuel price hikes (average 3%).
- Rupee stability against the US dollar amidst Iran-Israel tensions.
- Mixed participation in the recent T-Bill auction, with cut-off yields unchanged.
Topline Securities believes the SBP will likely maintain a cautious stance, waiting for a sustained inflation decline before a rate cut. They highlight potential risks like:
- Increased international prices.
- Delays in IMF funding.
- Additional tax measures by the IMF.
* Rupee pressure due to delayed dollar inflows.The upcoming MPC meeting will be closely watched by investors and businesses seeking clarity on the interest rate direction.