The monetary policy committee of SBP will convene on Monday (January 24, 2022) to announce the monetary policy for the next two months (Next policy: Mar 08, 2022). We expect SBP to keep policy rate unchanged at 9.75% in the upcoming monetary policy statement. To recall, the Monetary Policy Committee (MPC) convened last meeting in Dec’21 and reiterated its stance to ensure the longevity of growth and countering inflation while gradually targeting mildly positive interest rates over time.

Since the last monetary policy (Dec’21), inflation has shown some moderation on MoM basis. The headline inflation as measured by CPI clocked-in at 12.28% YoY in Dec’21 compared to 11.53% and 7.98% YoY in Nov’21 and Dec’20, respectively. This was the first time during FY22 that inflation declined MoM. With this, the average inflation for 1HFY22 arrived at 9.81% YoY vis-à-vis 8.63% YoY in SPLY. The SPI data so far hints at continuation of moderation in food index which will keep overall inflation in-check on MoM basis. For the next few months, however, this number is likely to remain in the double digits given the low base of last year.

Rising inflation is being witnessed across the globe and resultantly we have seen central banks in the regional markets reacting to the surging consumer prices pressured by global supply-chain disruptions, costlier energy and food supplies. However, with rising cases of COVID (Omicron) variant globally, there are concerns to the overall economic recoveries across different regions. Pakistan remains no exception to the spread of the variant and hence, we believe, policy makers might take into consideration this factor too and decide to pause monetary tightening for a while and gauge the effects of policy normalization settings undertaken in the last few months.

In addition, after taking the brunt of the external account pressure, PKR regained 0.79% against Dollar since the last MPS in Dec’21 to PKR 176.49. The trade deficit remains sticky for now posting a deficit of USD 25.5bn in the first six months of FY22 (Source: PBS).

Courtesy – AHL Research