SBP may cut policy rate by 100-150bps in upcoming monetary policy meeting
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KARACHI: The State Bank of Pakistan (SBP) will likely to cut policy rates by 100-150 basis points for the next two months after monetary policy committee meeting to be held on May 15, (Friday).
The market analysts expect the SBP to cut policy rates by 100 bps to 8.00% in the upcoming monetary policy statement but the business communities including the textile sector are demanding 2-2.5 per cent reduction in policy/discount rates.
According to the analysts, there are reasons to further cut the policy rates, 1) Inflation is likely to continue its downward trend due to massive decline in prices of petroleum products (MoGas and HSD prices reduced by Rs 15/liter and Rs 27/liter) along with lower demand of perishable items which may reduce inflationary pressure, and ii) Recent change in macros given outbreak of the Novel Coronavirus which may further induce the SBP to stimulate the economy by reducing policy rate further.
Moreover, it seems the fixed income market has already incorporated rate cut as treasury bills of 3Months, 6Months and 12Months are trading at 8.39%, 8.00% and 7.75% which are lower than current policy rate of 9.00%.
Monetary Policy Committee (MPC) convened emergency meeting on 16th April’2020 where the SBP announced a further cut in the policy rate by 200bps which is in addition to the 225bps cut announced in March, taking the policy rate to a single-digit of 9%.
The MPC opted rate cut stance on account of i) cushion the economic fallout (slowdown in growth and employment) amid Coronavirus, ii) worsening outlook for global and domestic economic activity in the wake of the Coronavirus Pandemic, and iii) SBP forecasting inflation to come down to single digits between 7-9% in the next fiscal year.
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