For the third time, SBP likely to keep monetary policy rate unchanged

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KARACHI: The State Bank of Pakistan will likely keep its monetary policy rate unchanged at 7% for the third in a row because of generous back-to-back reductions during 2020’s lockdowns. 

The risks to the outlook for growth and inflation appear balanced

SBP’s monetary policy committee will meet on Friday (January 22) to make a decision. 

Inflation expected to come down

BMA Capital Executive Director Saad Hashemy expects the interest rate to remain unchanged. His forecast is based on soft inflation reading during the ongoing month. “Inflation is expected to come on the lower side in January,” Hashemy said.

Pak-Kuwait Investment Company Research Head Samiullah Tariq agreed with the status quo and expects inflation to come down to 6% in January. “Until the balance of payments is stable, there’s still fear of Covid-related economic slowdown and globally central banks continue to inject liquidity in financial markets,” Tariq said.

Analysts believe the dovish stance may continue till July with inflation to stay average within the SBP’s target range of 7 – 9% during the current fiscal year of 2020-21.

Consumer price index inflation eased to 8% in December from 8.3% in the previous month. The SBP wants to stick to its growth projection of 1.5 to 2.5% in FY2021, a decent recovery from the dizzying 0.4% contraction in FY2020 as a result of the coronavirus lockdown.

The Covid-related uncertainty poses both upside and downside risks to the SBP’s macroeconomic projections, the SBP had said in a latest report.

But the latest SBP surveys reflect well-anchored inflation expectations of both businesses and consumers.

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