Monetary Policy Statement on July 30 – Status quo to prevail

We expect State Bank of Pakistan (SBP) to keep discount rate unchanged at 14% for the next two months in the monetary policy statement to be unveiled on July 30th.

We expect the SBP to derive comfort from (1) inflation remaining in the 13-13.2% range since Feb-11 and (2) sharp fall in government borrowing from SBP by 1.4% YoY (down 18% from recent peak) to PRs 1,155bn as of Jun-11.

On the flip side however, near term risks to inflation and oil import bill combined with uncertainty on relations with IMF and US and subsequent risk to sovereign flows should deter SBP from any rate cuts in the immediate future.

Recent debt and equity market trends suggest that a status quo on policy rates is likely to be a non-event for the markets. However markets are likely to pay attention to accompanying details for gauging future path of interest rates.

KASB Securities and Economics Research

To keep yourself updated subscribe to Markets Post by Email.