Market expects SBP to maintain benchmark interest rate

• State Bank of Pakistan to keep interest rate at 15%, says poll.
• Current account deficit appears to be under control.
• Poll shows 79% participants expect no change in policy rate.

KARACHI: The State Bank of Pakistan (SBP) is expected to keep its benchmark interest rate steady at its November 25 meeting, given that aggregate demand has slowed and the current account deficit appears under control, a brokerage house poll said on Thursday.

As per the survey on monetary policy expectations carried out by Topline Research, 79% of the participants expect no change in the policy rate in the central bank's upcoming monetary policy.

It is expected that the SBP would maintain the interest rate at 15%.

However, around 16% of the participants anticipate an increase, whereas 5% expect a decrease in the policy rate, it added.

“These results are also in line with our estimates where we think that policy rate will remain unchanged in upcoming monetary policy and are now at its peak where we can see a decline in policy rates in the second half of FY2023,” it said.

Since the last monetary policy statement on October 10, the consumer price index (CPI) inflation increased to 26.6% in October, compared with 23% in the previous month but this was primarily due to a major adjustment in electricity tariffs, which would not be recurring.

Furthermore, the trade deficit fell to a 23-month low of $2.32 billion in October, a 40% decline from a year earlier. The fall in the trade gap was due to a 26% decrease in imports, according to data from the Pakistan Bureau of Statistics.

“This (lower trade deficit) is likely to keep a check in CAD (current account deficit) going forward and will be a key driver in SBP’s monetary policy stance," Topline Research said.

"Moreover, floods and monetary and fiscal tightening measures have led to a slowdown in aggregate demand, which could lead to SBP opting for status quo, we believe."

Responding to the question on participants’ views about the policy rate by end of the current fiscal year, the majority think the policy rate would be less than what it was now by June 2023, according to the poll.

Thirty-five per cent of the participants expect the policy rate to be in the range of 14-15%, 27% of the participants expect the policy rate to be in the range of 13-14%, and 19% of the participants anticipate it to be in the range of 12-13% by June 2023, it said.

In terms of the outlook for the current account deficit, 62% of the participants expect it to be in the range of $8-12 billion in FY2023, while 21% of the participants expect it to be below $8 billion.

The current account gap in FY2022 had clocked in at $17.4 billion led by a sharp uptick in imports.