Investors limit bets on rising rates on political stability


KARACHI: Investors have cut bets on any further interest rate hikes at the upcoming monetary policy meeting amid a sharp 250 basis point increase earlier this month and hopes for political stability in the country after the opposition formed a coalition government.

The rate hike was one of the largest since 1996.

The SBP updated its calendar of monetary policy meetings on Saturday, indicating that the next rate meeting will be on May 23.

“In light of the emergency monetary policy meeting held on April 7, 2022, the next regular meeting of the MPC is now scheduled for May 23, 2022,” the SBP said in a statement.

The central bank raised the key rate to 12.25% on April 07 after holding an emergency meeting due to the growing risk to inflation and external sector stability. The SBP has also taken other measures to reduce pressures on inflation, the rupee and the current account. It imposed 100% cash margins on 177. The SBP increased the interest rate on the export refinancing program.

The SBP said it has taken aggressive policy measures to ensure stability in financial markets threatened by political uncertainty and a deteriorating economy. Former Prime Minister Imran Khan’s attempt to avoid the opposition’s decision to oust him through a no-confidence move by dissolving parliament plunged the country into a full-scale political crisis.

Analysts expect the Monetary Policy Committee (MPC) to need more time to elevate the impact of a sharp rise in interest rates on inflation, the currency and the balance of payments.

“Interest rates are unlikely to rise in May given the sharp rise in the recent emergency meeting,” said Saad Hashemy, chief executive of BMA Capital. “Additionally, the government is focusing on fighting inflation, especially the essentials which have a significant weight in the inflation index.”

But the next monetary policy move would be interesting as markets and analysts watch how the SBP fare in the new setup in Islamabad and when the new government enters talks with the IMF to resume a $6 billion lending program.

Prime Minister Shebaz Sharif has decided not to scrap fuel subsidies for now despite pressure on public funds. It also kept the prices of petroleum products unchanged. However, the government has increased electricity tariffs by 4.8 rupees per unit.

“This time, it is very difficult to predict what the next monetary policy decision would be as the sharp rate hike has been made and its impacts will start to be felt over the next few weeks,” said Abdul Rehman Siddiqui, deputy director. of research at BMA. Limited capital management.

Analysts said inflation was generally on the rise in the month of Ramazan. Only post Ramazan inflation readings should be taken into account for any policy decision.

“If oil prices remain the same and its impact is visible on food inflation, a slight increase in the policy rate will be necessary, but the requirement has already been met by raising 250 basis points in one go during from the last meeting,” Siddiqui said. .

In line with the anticipated semi-annual schedule that the SBP has been announcing on a rolling basis since May 2021, the MPC meeting schedule for the remainder of calendar year 2022 is envisioned as follows:

The SBP will hold a next meeting on July 7 (Thursday), then on August 22 (Monday) and October 10 (Monday). The last meeting of 2022 will take place on November 25 (Friday).

“The anticipated MPC meeting schedule for the first half of calendar year 2023 will be shared at the November 2022 MPC meeting,” the bank said.

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