Will State Bank Maintain Interest Rate Today?
The State Bank of Pakistan (SBP) will meet today (10 October) to assess developments in the economy and announce its monetary policy for the next seven weeks.
Conflicting moves in economic indicators suggest the worst is not over yet, but markets have developed a consensus that the key interest rate will remain unchanged at 15% for the next month and a half.
However, a large number of market participants did not rule out a decline of 25-50 basis points as inflation eased to 23.2% in September from a 47-year high of 27.3% in the previous month.
More importantly, the new Finance Minister Ishaq Dar, following his old prescription of a controlled economy, wants to see an easy monetary policy.
Today’s Monetary Policy Committee (MPC) meeting is the first since SBP Governors Jamil Ahmad and Dar took office.
Flexible rupee/dollar interest rates and parity are two of the main tools available to central banks around the world to control inflation accounting and direct the economic path in their respective countries.
Current Monetary Policy Pakistan
SBP raised interest rates for 11 months (September 2021 to July 2022) by a total of 800 basis points to 15%. The central bank left interest rates on its previous monetary policy, which was presented in August 2022.
Further upgrading is clearly not an option from the point of view of policymakers, which could have devastating consequences. The economy has shrunk beyond what was necessary as a result of the devastating floods.
Soaring international oil prices, which have returned to $100 per barrel this weekend, pose a serious threat to Pakistan’s economy, which could keep the country’s import bill and inflation at a higher level. The rise in oil prices is likely to be prolonged after OPEC+ announced a significant reduction in oil production of two million barrels per day.
Developments in the energy market could force the central bank to leave interest rates unchanged. On the other hand, a reduction in inflation, a reduction in the dual trade and current account deficits, and a smart recovery of the rupee against the US dollar could lead to a reduction in the policy rate.
Will State Bank maintain interest rate today?