KARACHI – State Bank is all set to hold Monetary Policy Committee (MPC) meeting today on May 5, but there are very thin chances of further cut in policy rate, which currently hovers at 12 percent.
Despite significant drop in inflation and real interest rates, experts do not see central bank to implement further rate cut in today’s monetary policy meeting. As business community pushed for a substantial reduction, analysts predict the SBP will maintain the current rate.
In the previous meeting, State Bank surprised many by keeping policy rate unchanged, disappointing business community who were hoping for more substantial cut. While inflation moved down to low 0.3% in April, and many financial experts advocate for reducing the rate to spur economic growth, there are concerns about potential inflationary pressures due to geopolitical tensions, particularly between Pakistan and India.
A poll by Karachi based brokerage house revealed that two third of participants are expecting meagre rate cut of at least 50 BPS, while one third believe the SBP will hold the rate steady. However, the latest data and expert analysis suggest that the central bank may err on the side of caution, opting for a status quo rather than a drastic reduction.
SBP is unlikely to make a major move due to ongoing uncertainty in the global economic environment and concerns over potential price shocks.
Another poll by an international wire news agency shows policy rate to remain unchanged as latest data indicates that core inflation has also decreased to 7.4%, which has led some to argue for a more aggressive monetary stimulus. However, there remains a strong belief that the SBP will prioritize stability over rapid economic adjustments.
Pakistani business community groups have been vocal about their desire for a policy rate reduction. Chamber of Commerce and Industry also pushed for lowering the policy rate to single digits to foster industrial growth.
Despite these calls, SBP remains cautious, with some financial sector leaders warning that a drastic rate cut could lead to further capital outflows. As of now, it appears that while a small rate cut is still on the table, a major adjustment is unlikely in the immediate future, with the SBP likely to keep a steady hand on monetary policy until the economic outlook becomes clearer.
