SBP likely to leave rate on hold

Pakistan’s central bank is scheduled to announce its key policy rate for the next seven weeks on upcoming Monday. A majority of pundits have developed consensus that the bank will leave the rate unchanged at 15% in order to wait for the stabilisation of economy. However, a significant section of market participants did not rule out a reduction of 25-50 basis points, considering a fall in inflation reading to 23.2% in September compared to a 47-year high of 27.3% in the prior month. More importantly, new Finance Minister Ishaq Dar, who is following his old recipe of running a controlled economy, will like to see an easy monetary policy. The policy rate is a tool for the central bank to create a balance between inflation and economic growth. The central bank increased the rate by a cumulative 800 basis points in 11 months (September 2021 to July 2022) to 15%. The bank maintained the rate in its previous monetary policy unveiled in August 2022. A further hike is apparently not an option in the minds of policymakers, which may prove to be disastrous. The economy has already contracted beyond the required level in the wake of devastating floods. Rising international oil prices, which have bounced back towards $100 per barrel this weekend, pose a serious threat to Pakistan’s economy.