Pakistan expected to retain 7% interest rate amid growth momentum 

Pakistan expected to retain 7% interest rate amid growth momentum 
A logo of the State Bank of Pakistan (SBP) is pictured on a reception desk at the head office in Karachi, Pakistan July 16, 2019. (REUTERS)
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Updated 21 September 2020

Pakistan expected to retain 7% interest rate amid growth momentum 

Pakistan expected to retain 7% interest rate amid growth momentum 
  • Follows central bank’s reduced tariff rates since March this year to support coronavirus-hit economy
  • Final decision on monetary policy for next two months to be taken tomorrow 

KARACHI: A day ahead of the State Bank of Pakistan’s (SBP) monetary policy meeting, several financial experts told Arab News on Sunday that they expected the key interest rate to remain unchanged at 7 percent and the currency to remain “stable.”
They credit it, among other factors, to controlled core inflation, economic growth momentum and the country’s Large Scale Manufacturing (LSM) industries which grew by 5.02 percent in July.
“Though the inflation figures are little inflated, the core inflation is controlled. The remittances inflows and current account position is encouraging, and the economic activity is picking up, which is evident from the LSM data. The economic indicators are stable,” Samiullah Tariq, Head of research at Pakistan Kuwait Investment (PKI), told Arab News, adding that the “national currency is also stable”.

It follows the central bank’s move to drastically cut the policy rate from 13.25 percent to 7 percent – or 625 basis points between March 17 and June 25 this year – to support growth and employment due to economic disruptions caused by the coronavirus pandemic.
Monday’s event will be the first after the central bank’s Monetary Policy Committee (MPC) skipped its regular meeting in July, which it said was “unnecessary to hold” at the time.
The LSM’s overall output decreased by 10.17 percent during the outgoing fiscal year FY20 when compared to the same period last year.
However, general inflation in August 2020 increased by 8.2 percent on a year-on-year basis as compared to 9.3 percent in July 2020 and 10.5 percent in August 2019, mainly due to a spike in food prices, data shared by the Pakistan Bureau of Statistics showed.
Meanwhile, a survey conducted by the Chartered Financial Analyst (CFA) Society Pakistan, a representative body of chartered accountants in the country – based on the central bank’s measures – showed that 91 percent of respondents expect that the policy rate will remain at 7 percent. In contrast, others believe that it would be increased by 50-100 basis point (bps) by June 2021.

Another survey conducted by the brokerage house, Topline Securities, also showed that out of 87 responders, 63 are of the view that the rate will remain unchanged, while 18 voted for a rate cut between 25-100 bps, while the rest voted for a rate hike of 25-100 bps.
“Our analysis showed that perhaps the central bank would not change the interest rate, which is also the findings of major surveys conducted. The major reason is that the inflation rate is around 8 percent and the policy rate is 7 percent, which means the savers are incurring losses… the real interest rates is minus,” Muhammad Sohail, CEO of Topline Securities, told Arab News.