- Inflation fell to 2.4% in January, a hollow of 111 months.
- Ahl considers a cup of 50 bps as “a logical step” for the next MPC meeting.
- Seventy percent of market players anticipate a drop in rates.
Karachi: The Pakistan State Bank (SBP) can adopt a cautious approach to other interest rate drops this month, despite the drop in inflation creating space for a reduction, The news reported by quoting analysts and surveys.
In January, the SBP lowered its reference interest rate of 100 basic points (BPS) to 12%, marking the sixth consecutive decline and bringing the total reduction to 1,000 pb since June 2024.
The Central Bank’s monetary policy committee (MPC) is expected to meet on March 10 to determine the next line of driving. The decision follows the arrival of a delegation from the International Monetary Fund (IMF) in Pakistan on March 3 for an examination of the rescue package of $ 7 billion.
This review will focus on new income objectives and tax measures, which could have an impact on inflation projections and influence the position of the SBP on monetary easing.
ARIF HABIB Limited (AHL), a brokerage company based in Karachi, noted that the significant drop in inflation was the main catalyst for rate cuts. In January, inflation fell to 2.4% – the lowest level in 111 months – while February should see it decrease to 2.2%.
“Given the sharp drop in inflation and stable reserves, a drop in rate of 50 bp seems to be a logical step in the next political meeting,” said the report.
However, with the basic inflation which remains high, the current account showing a deficit and the market yields increasing, the SBP is likely to adopt a more cautious approach in the future. The end of the rate cutting cycle can be closer than expected, he added.
“The SBP faces a delicate balance on March 10, weighing the need for growth against the imperative to maintain macroeconomic stability.”
Another brokerage house, Topline Securities, said that the central bank still has room for a new drop in rate of approximately 100 basic points due to a real interest rate of 300 to 400 pb at the current rate of 12%. However, he plans that the SBP MPC will probably maintain the status quo at the next meeting for several reasons.
Higher import figures for the last two months (on average 5.2 billion dollars in December and January) and a depreciation of 1.6% of the roupie since November 2024 on the sidewalk market can encourage the SBP to suspend other interest rate reductions to carefully assess the impact of previous adjustments, he said.
In January, the actual effective effective exchange rate reached 104.05, which suggests that the local currency can be overvalued compared to other commercial and regional peers, he noted.
In a survey by topline titles, market players have expressed various opinions: 38% believe that rates will remain unchanged, while 62% anticipate a rate of at least 50 BPS. AHL’s survey indicated a clear majority promoting a drop in rate, 74% expecting the SBP to facilitate monetary policy.
Among them, 36.8% expect a reduction of 100 SBPS, 21.1% predict a substantial reduction of more than 150 SBPS, 10.5% provide for a drop of 50 SBPS and 5.3% anticipate a reduction of 75 SBPS. Meanwhile, 26.3% believe that the policy rate will remain the same at 12%.