Policy Rate likely to stay at 7 pc

Karachi, March 17, 2021: The Monetary Policy Committee of the State Bank of Pakistan (SBP) is most likely to maintained Policy Rate at 7 pc amid accommodative Monetary Policy.

The meeting of the committee is scheduled to meet for next 2-month monetary policy on 19th March 2021.

In the current economic scenario, the market is expecting that MPC to maintain the status quo as the economy still needs an accommodative policy to accelerate demand. Furthermore, there is still an upside risk to the projected 2 percent GDP growth for FY21.

Despite, the expected rise in inflation during the next three months due to hike in prices of food items in Ramadan, Eid-ul-Fitr and Eid-ul-Adha will build up pressure on commodities price but mainly rising trend in oil prices globally and the start of the IMF program remain the major risk for inflation.

Given the rise in government bonds yield, MPS is also not expected to impact the interest rates as market participants have been using it as a proxy in predicting CPI.

The rising aggregate demand, stems from the resurgence in economic activity and improving consumer and business confidence, have shown strong recovery.

According to Spectrum Research one of the major indicators, LSMI output grew by 9.13 percent YoY 5.36 percent MoM in Jan’21 and 7.85 in 7MFY21. The increase in production of Auto, Sugar, Fertilizer, Cement, Billets/Ingots and Cigarettes sectors mainly contributed output growth during 7MFY20.

The influence of the third wave is expected to be much stronger due to a new variant from the United Kingdom that is more contagious. This has resulted in new smart lockdowns in the major cities of the country, creating a panic-like situation although the lockdown is not as severe as the one placed during Mar’20 but can be expected to cause unwanted pressure on resuming economic activities.

The authorities have sealed some parts of Islamabad, Punjab, Sindh, and KPK caused by a spike in cases. Pakistan recorded 2, 253 new cases of the virus in the last 24 hours, with active cases rising by 917 to 22,038.

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