The policy rate is likely to be kept constant at 7.0%

State Bank of Pakistan is set to announce monetary policy on May 28, 2021. We expect the policy rate to be kept constant at 7.0% to support the country’s ongoing expansionary phase and GDP growth, despite negative real interest rates.

The SBP policies are expected to accommodate economic activities in the medium term, despite higher inflation. During the ongoing year, the massive rise in food prices given mismanagement and smuggling accompanied with the rise in power tariff on IMF’s recommendation, and the impact of higher commodity prices fueled up the inflation. SBP expects CPI to settle between the range of 7-9% in FY21, and it is now hanging on 8.62% for the period of 10MFY21 which is still within the range of SBP estimates.

Going forward, the government’s stance is to keep taxation and power tariff untouched to reduce the inflation pace in the medium-term; however, hoarding and smuggling would keep food prices on the higher side while any rise in international oil prices due to controlled supply and resuming of economic activities will also be a major concern for oil-based inflation.

Courtesy – Spectrum Research’

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