State Bank of Pakistan (SBP) may increase key policy rate by 75-100 basis points in its monetary policy announcement scheduled for Saturday, September 29, 2018, analysts said on Thursday.
Analysts at Arif Habib Limited expect another rate hike of 100 basis points in the upcoming monetary policy, this is going to be third consecutive rate increase. The SBP in the last monetary policy announcement on July 14, 2018 increased the policy rate by 100 points to 7.50 percent.
Furthermore, it seems like the money market has already incorporated the rate hike which is evident in the graph below that indicates discount rate hike is necessary to fulfill the gap of 60bps between 12-M T-Bills and Discount Rate.
In the last meeting, State Bank of Pakistan increased the policy rate by 100bps as 5 out of 6 members gave the nod after considering various factors including i) trends and outlook of core and non-core inflation, ii) supply and demand gap, and iii) pressure on external account position.
Analysts at Taurus Research said that The State Bank’s MPS will be a key factor going forward as the IMF arrives in October. Conservative estimates peg the expected policy rate hike at 75 bps. “If this holds true, we will have missed an opportunity to speed up negotiations with the IMF with proof of our commitment to an inevitable period of austerity. A policy rate hike of 100-150 bps would be in line with the SBP’s past decisions and future expectations of the direction of our economy.
While a policy rate hike, of any magnitude, will temper some of the inflationary pressure of the rising costs of energy and gas going forward, a confluence of negative stimuli may make October our toughest month of the calendar year, they said.