State Bank of Pakistan might cut key policy rate on July 29

As the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is being held on July 29 to decide the interest rate, all eyes are on the central bank.

Governor SBP Jameel Ahmad is set to announce monetary policy, with the market anticipating a second straight interest rate cut.

High-net-worth people and financial institutions were surveyed recently by Securities Broking and Investment Banking organisations, and the results indicated a strong expectation for a large rate drop.

According to the poll, 47 percent of the market anticipates a drop of 100 basis points, while 33 percent anticipates a more aggressive decrease of 150 basis points.

The US investment banking firm JP Morgan also forecast that following the $7 billion Extended Fund Facility (EFF) agreement between Islamabad and the IMF, the central bank will reduce its key policy rate by about 5 percent throughout the fiscal year.

Notwithstanding a minor increase in the current account deficit and exclusion from the offshore bond market, JP Morgan also anticipated that the EFF will grow foreign reserves. Recent policy-based loans from the World Bank and ADB are considered a major vote of confidence in Pakistan’s creditworthiness, as is the case with the new EFF.

Earlier on June 10, the SBP slashed the interest rate by 150 basis points (bps) to 20.5 per cent.

The SBP Monetary Policy Committee (MPC) noted that “underlying inflationary pressures are also subsiding amidst tight monetary policy stance, supported by fiscal consolidation”.

At the same time, the MPC highlighted “some upside risks to the near-term inflation outlook associated with the upcoming budgetary measures and uncertainty regarding future energy price adjustments”.