ISLAMABAD: Most market participants expect Pakistan’s central bank to leave its benchmark interest rate unchanged next week, according to a survey by brokerage Topline Securities released on Tuesday, as higher oil prices linked to renewed conflict between the United States and Iran temper expectations of an early monetary easing cycle.
The State Bank of Pakistan’s Monetary Policy Committee is scheduled to meet on July 27 after keeping its key policy rate at 11.5 percent in June. While inflation has remained broadly contained in recent months, a rebound in global oil prices has complicated the outlook for further rate cuts by raising concerns about imported inflation and Pakistan’s external account.
A poll of market participants conducted by Topline Securities found that 97 percent expect the central bank to keep the policy rate unchanged, while only 3 percent anticipate a 100-basis-point cut. Topline said it also expects the State Bank to leave rates unchanged at 11.5 percent.
“The recent rebound in oil prices warrants a cautious approach before considering any policy easing,” the brokerage said, adding that geopolitical developments had reduced the likelihood of an imminent rate cut.
According to the report, expectations had shifted significantly over the past month. Following the signing of a US-Iran memorandum of understanding in June, easing geopolitical risks and lower international oil prices prompted investors to price in cumulative rate cuts of 100 to 150 basis points over the following two or three monetary policy meetings. Those expectations weakened after renewed hostilities between Washington and Tehran pushed oil prices higher again.
The brokerage said the shift was reflected in Pakistan’s debt market. Six-month Treasury bill yields fell below the policy rate after the June agreement before climbing back to around 11.5 percent over the past 10 days as investors reassessed the interest-rate outlook.
Looking beyond next week’s meeting, market participants were divided over the policy path through the end of the year. About 49 percent expected the benchmark rate to remain at 11.5 percent by December, while 46 percent anticipated further cuts and 6 percent expected rates to rise. Topline said it expected the policy rate to fall below the current level by year-end as inflation eases.
Respondents also offered mixed views on inflation, with the largest group expecting average consumer inflation of 8-9 percent during the current fiscal year. Most expected the Pakistani rupee to remain broadly stable, with nearly half forecasting the currency to trade between Rs280 and Rs285 against the US dollar by December.
