KARACHI: The first monetary policy after the new appointments of the State Bank of Pakistan governor and finance minister has evoked keen interest from the financial sector amid expectations of ‘no change’ in the interest rate given unprecedented inflationary pressures.

The bimonthly monetary policy will be announced on Monday by SBP chief Jameel Ahmed while Finance Minister Ishaq Dar is believed to have provided his inputs.

Mr Dar is willing to bring down both the policy interest rate as well as inflation at the same time.

The current SBP policy rate is 15 per cent while the inflation in September was over 23pc compared to 27pc in August and about 25pc in July. It shows the real interest rate is negative with a wide margin.

If the interest rate is brought down it would increase the money supply which further fuel inflation quite contrary to the wishes of the new finance minister. Analysts were keen to see what steps are taken to deal with the situation.

Already unprecedented inflation drastically reduced private sector borrowings during the first quarter of the current fiscal year. The government estimates the economic growth rate would be in the range of 3 to 3.5pc while international agencies predict it would be as low as 2.3pc for FY23.

The higher interest rate increases risk for banks as the chances for default rise. Since the new finance minister is willing to bring down the interest rate, there is no chance for its increase in the monetary policy.

“There is only one thing to target, either the inflation or interest rate. Inflation deserves to be addressed while the interest has no chance to see a decline,” said a senior banker.

He said in recent months Turkiye paid a heavy price for going against the settled economic rules by decreasing interest rates while inflation was high. The annual inflation rate in Turkiye rose for the 16th consecutive month to 83.5pcin September soaring from less than 20pc in the corresponding period of the previous year.

“Interesting to see what new is coming in the monetary policy with the induction of new governor SBP and new finance minister. It is hard to see any change in the policy interest rate,” said a senior banker.

Published in Dawn, October 7th, 2022

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