‘Rare’ central bank assurance hailed

Published January 23, 2021
For the first time the central bank provided additional confidence to the stakeholders of the economy by saying clearly that the interest rate would remain unchanged in near-term. — Shutterstock/File
For the first time the central bank provided additional confidence to the stakeholders of the economy by saying clearly that the interest rate would remain unchanged in near-term. — Shutterstock/File

KARACHI: The monetary policy announcement immediately caught the attention of trade and industry on Friday, but analysts found it to be more than a bi-monthly interest rate call.

For the first time the central bank provided additional confidence to the stakeholders of the economy by saying clearly that the interest rate would remain unchanged in near-term.

Most analysts think near-term means the interest rate would remain unchanged till May which provides confidence to investors as well as to the entire economy. However, some linked it to the next programme with the International Monetary Fund (IMF), which traditionally influences the interest rate regime to tighten the fiscal deficit.

The SBP said that in light of Covid-related uncertainties, the MPC considered it appropriate to provide some forward guidance on monetary policy to facilitate policy predictability and decision-making by economic agents.

“In the absence of unforeseen developments, the MPC expects monetary policy settings to remain unchanged in the near term,” said the SBP.

Mohammad Suhail, CEO of Topline Securities, feels the SBP’s decision is in the background of IMF programme.

“In order to overcome concerns that interest rates may rise after resumption of IMF programme, the SBP has given indication that rates will remain unchanged for near term that means at least, till the next monetary policy due in March,” said Mr Suhail.

The State Bank said that as the recovery becomes more durable and the economy returns to full capacity, the SBP expects any adjustments in the policy rate to be measured and gradual to achieve mildly positive real interest rates.

Tahir Abbas, Director Research at Arif Habib Company, said the decision to keep the interest rate unchanged will give confidence to all stakeholders of the economy. It looks it would be unchanged even in March, the change is possible in May, he said.

He said the SBP would go for gradual change if it is necessary. “In my opinion the change could be in the range of 25 to 50 basis points which means no monetary shock for the stakeholders. This is a confidence-building measure and supports all those planning investments, expansions and other activities.”

Samiullah Tariq, head of research at Pak-Kuwait Company, said the State Bank provided clarity about the future trend of interest rate.

“In my view it has given clarity to the market participants regarding future direction of interest rate,” said Mr Tariq.

Moreover, it would help them overcome uncertainty while taking investment decisions regarding interest rates, he added.

Published in Dawn, January 23rd, 2021

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