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Interest rate likely to remain unchanged

19 September, 2014

KARACHI: The State Bank of Pakistan (SBP) will unveil its Monetary Policy Statement (MPS) for the next two months on Sept 20 (tomorrow), but experts expect status quo with no change in the interest rate due to a number of reasons challenging the economy.

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KARACHI: The State Bank of Pakistan (SBP) will unveil its Monetary Policy Statement (MPS) for the next two months on Sept 20 (tomorrow), but experts expect status quo with no change in the interest rate due to a number of reasons challenging the economy.

Despite declining inflation, which fell to 7 per cent in August and a positive real interest rate, the discount rate may not change, according to analysts watching the monetary events closely.

Since November 2013, the discount rate is unchanged at 10 per cent though trade and industry criticised it severely, particularly due to single-digit inflation.

Also read: SBP keeps interest rate unchanged at 10pc

Researchers said that recent floods which were making a devastating impact on major crops, like cotton, rice and sugarcane, could push inflation higher in the coming months.

The impact of floods will be felt from November. The food basket in CPI has large weightage and may change the declining trend, said a research analyst. He did not see change in the discount rate.

The flood has covered most part of Punjab and has entered Sindh. The details of devastations will reveal its real impact on economy and accumulated losses of crops, cattle, houses and other assets of flood victims.

However, pressure on the exchange rate and increasing demand and low supply of the greenback was another reason that may force the State Bank to keep the prevailing interest rate unchanged.

"No change is likely. With local currency under some pressure amid fears of delay in dollar inflow due to political tension, SBP will follow a status quo," said Mohammad Sohail, CEO of Topline Securities.

Pending IMF tranche may also force the central bank to follow IMF measure of keeping the real interest rate on positive side, he said.

Researchers said the IMF would not release stuck up tranche until the government raises the electricity and gas tariffs. The IMF wants to see higher revenue with advice to raise the tariffs.

The government is facing serious political challenge with sit-in in front of the parliament, and it may not take the risk at this moment to increase the electricity and gas tariff as per IMF demand.

End.


 
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