The SBP could take global commodity prices into account in its monetary policy decisions


KARACHI: The State Bank of Pakistan (SBP) is likely to review the impact of high oil and other commodity prices on international markets, while announcing the monetary policy, which is scheduled for March 8, 2022 .

The SBP announced the first inflationary pressure of this year on January 24, 2022 and kept the key discount rate unchanged at 9.75%. However, in the last three policy decisions, the central bank raised the bank rate by 2.75%, from 7% to 9.75%.

In the next policy move, the SBP Monetary Policy Committee will focus on easing inflationary pressures due to a package announced by Prime Minister Imran Khan to reduce the prices of petroleum products and electricity.

However, on the other hand, rising oil and other commodity prices in international markets due to the Russian-Ukrainian war would remain a major concern.

Analysts said the upcoming policy announcement will be an important move as the market will closely follow the central bank’s policy guidelines as the country currently faces several economic challenges.

The State Bank, in its latest monetary policy statement, said the decision was in line with previous forward guidance provided by the SBP and taking into account consideration of the economic recovery.

In its latest monetary policy statement, the SBP said, “Current real interest rates on a forward-looking basis are appropriate to guide inflation into the medium-term 5-7% range, support growth, and maintain External Stability If future data outcomes require an adjustment to monetary policy settings, the MPC expects any changes to be relatively modest.

Since the last monetary policy statement, major developments have taken place and the new data is now available, which will likely be taken into account by the central bank in the next monetary policy statement, Topline Securities analysts said.

Due to the Russian-Ukrainian crisis, commodity prices have risen sharply, which has implications for inflation and the current account outlook.

Arab light oil prices have risen more than 21% since the last monetary policy announcement.

Due to the sharp run-up in commodity prices, inflation concerns and the current account outlook, secondary market yields on Treasuries and GDPs have risen 25 to 30 basis points since the 18 February 2022.

Similarly, yields on Eurobonds maturing in 2024/2027 also increased by 200 to 300 basis points.

The current account deficit in January 2022 stood at $2.6 billion, which was higher than expected taking the current account deficit at $11.6 billion in the first seven months (July-January) 2021/22.

In addition, inflation reached around 12.2% in February 2022 compared to 13% in January 2022 and 12.3% in December 2021.

Analysts said that in a surprise move, Prime Minister Imran Khan recently announced a reduction in the price of petroleum products by Rs10/litre and electricity tariff by Rs5/unit. This, at a time when international oil prices are rising sharply and Pakistan had agreed with the IMF to increase the Petroleum Development Levy (PDL) on petrol up to Rs 30/litre, is seen as a move. populist as a result of growing political pressure. .

They expect it to cost about 800 billion rupees on an annualized basis, or about 1.3% of GDP.

Analysts said that although commodity prices have risen sharply recently, but given the SBP’s aim to support economic recovery and its latest forward guidance, we do not expect any changes in the upcoming policy statement. monetary.

The decision not to raise oil prices until June 2022 could also provide some protection for the inflation outlook.

Given the latest developments, the SBP may also revise its forecasts for the current account deficit (projected at 4% of GDP in FY22) and inflation (9-11% in FY22). ).

Topline Research conducted a monetary policy survey to gauge the opinion of financial market participants on the upcoming monetary policy statement. According to the poll, there was a split view on the outcome of the next MPS with around 53 percent of participants believing there will be no change in the policy rate, while 44 percent of participants believe there will be there will be an increase in the key rate.

Only 3 percent of respondents anticipate a cut in the policy rate.

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