The State Bank of Pakistan is ready to announce its monetary policy for the next couple of months, economy experts have predicted a downward trend in discount rate. Currently the discount rate is at 10 percent, the new rate is expected to be announced in few days; a decrease ranging between 50 to 100 basis point is expected, this will help in easing up inflationary pressure from the economy.
The Bureau of Statistics of Pakistan reported the Consumer Price Index inflation at 5.82 percent as compare to 9.1 percent reported in October 2013. This depicts a 17-month low movement. The Shajar Research analyst declared it as the lowest inflation reading after Jun, 2013. During 4MFY15, CPI remained at 7.09 percent as compared to 8.32 percent in the corresponding period of FY14.
The below 6 percent inflation is due to base effect with decline in food perishable items. This decline in CPI eased monetary space and also indicates the positive real interest going forward, this also indicates a possibility of cut in discount rate in the next monetary policy.
The analysts also said that falling international oil prices would also support the widening trade deficit. Expected inflow of $1.1 billion from IMF, disinvestment of OGDCL shares and floating of Ijara Sukuk (Islamic bonds) could also help in easing pressure on rupee, which is currently trading against dollar against Rs 102 mark on inter-bank and kerb markets.
A weak foreign exchange reserves position of is also a matter of concern for SBP. The country’s dollar reserves stood at $4.6 billion; a decrease of $150 million repayment on account of debt retirement this month, will also impact the forex reserve. The State bank might also reduce the cost of borrowing for banks.
Keeping in view; increased corridor of real interest rates, it is expected that SBP would go 50bps-100bps policy rate reduction in the November monetary policy decision.
The experts also expect more ease in monetary policy during FY15; assuming 0.55 percent CPI for each remaining months of FY15 indicates inflation would remain around 7.2 percent YoY in FY15. Any upsurge in utility prices might nullify the impact of low oil prices on CPI.