Pakistan's central bank is expected to hold its key interest rate steady at a policy review next week, with most market participants seeing sufficient real interest rate gains and improving external finances to offset risks from elevated oil prices, a poll showed on Tuesday. The State Bank of Pakistan (SBP) is likely to keep its policy rate at 11.5 per cent on Monday, according to a Topline Securities poll.
Some 84 per cent of respondents expect no change, while 14 per cent forecast a 50-basis-point increase and 2.0 per cent see a 100-basis-point hike. Interest rate expectations have remained broadly stable since the last monetary policy meeting in July, although risks to the outlook have increased as oil prices have risen and tensions between the US and Iran have renewed uncertainty over global energy markets. The domestic petrol prices have increased by Rs24 per litre since the last policy meeting, while diesel prices have fallen by only about Rs2 per litre despite a cap on crack margins at $41.9 per barrel, according to Topline Securities.
"We believe market participants' expectations are largely driven by annual inflation expectations, which at current oil prices ($95 per barrel) remains largely below 9.0 per cent (FY27 average), suggesting positive real spread of over 250 bps [basis points], in line with historic real rates," it said. "Furthermore, improving reserves and a contained current account balance are also augmenting the status quo view of participants, we believe," it added.
Money market pricing also indicates policymakers have room to stay on hold for now, with three-month and six-month Treasury bill yields at around 11.41 per cent and 11.68 per cent, respectively, largely unchanged from levels seen around the previous meeting. Topline expects the SBP to keep the interest rates unchanged on September 14."Our view is based on sufficient real spread and an improving external outlook, especially after the recent $3 billion Eurobond launch," it added.
"However, if oil prices and food inflation remain sticky, this could also warrant a rate hike of 50-100 bps in upcoming MPC meeting(s), ie, October-December," it said. The consumer price index rose 11.5 per cent year-on-year (YoY) in August.The central bank kept the policy rate unchanged at 11.5 per cent at its July meeting.