ISLAMABAD: As tensions between the United States and Iran trigger uncertainty in global energy markets, Pakistani financial analysts said on Monday they expect the central bank to maintain the status quo as it gears up to announce the monetary policy today.
The State Bank of Pakistan’s (SBP) Monetary Policy Committee is scheduled to meet today after keeping its key policy rate at 11.5 percent in June. This is the first time that the monetary policy will be announced after fighting between the US and Iran resumed earlier this month.
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.
“I expect the SBP to keep the policy rate unchanged at 11.50 percent, as heightened geopolitical tensions and the resulting uncertainty in global energy markets support a cautious wait-and-see approach,” Muhammad Waqas Ghani, head of research at JS Global Capital Limited, told Arab News.
Ghani said an increase in the policy rate by 50 basis points remains a “low probability possibility” if the Monetary Policy Committee chooses to take an “exceptionally cautious stance” in response to upside risks to imported inflation and external sector stability.
Ahsan Mehanti, chief executive officer at Arif Habib Commodities Limited, said he also expected the SBP to maintain the status quo with regard to the policy rate.
“No change expected to due inflationary expectations owing to ongoing US-Iran tensions,” Mehanti told Arab News.
A poll of market participants conducted by Topline Securities last week 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 SBP 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 have 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.
