Pakistan may delay monetary easing
KARACHI: Pakistan’s central bank is expected to delay the start of its easing cycle and keep interest rates at a record, as concerns linger over inflation accelerating again despite a drop in consumer prices, according to market analysts.
The State Bank of Pakistan was expected t o keep interest rates unchanged yesterday compared to earlier expectations it would start easing policy, said Next Capital Ltd and Standard Capital Securities Pvt.
A Bloomberg survey saw 21 of 35 analysts keep rates unchanged with 14 predicting a cut.
The South Asian nation is still home to the fastest inflation in Asia but consumer price growth has dropped below the interest rate for the first time in three years. That’s the key indicator economists were looking at as a trigger for the central bank to cut rates.
“We revised from our previous expectation of a cut in April, due to inflation risks,” said Shahab Farooq, head of research at Next Capital. “A cautious approach amid a new IMF programme and expected budgetary measures may be inflationary.”
Pakistan is in discussions with the International Monetary Fund for a new bailout programme for three years that analysts say can dictate most of the key economic decisions, including interest-rate setting.
The State Bank of Pakistan was scheduled to announce the monetary policy rate yesterday. The magnitude of the expected rate cuts have dropped for economists. They estimate the key rate dropping to 17.25% by the end of the year now compared with 16% in January, according to the median forecast in surveys conducted by Bloomberg.
Inflation data is due to be released later this week. Consumer price growth is expected to ease to 17.5% in April from 20.7% the month before, according to a Bloomberg survey.
Pakistan might not be the only nation reacting to inflation this way, said Faisal Shahji, chief strategy officer at Standard Capital Securities.
“Central banks around the world continue to maintain status quo in rates despite cooling inflation,” he said.