KRARCHI: The Ramazan-driven price spiral could take up the food basket inflation to its peak in March which may not allow the State Bank of Pakistan (SBP) to take any significant cut in the interest rate, said market sources.

The induction of Finance Minister Muhammad Aurang­zeb, who was the CEO of Habib Bank Ltd and a regular participant in policy meetings on finance during the caretaker government, did not change the sentiments of the market, instead, the possibility of interest rate cut in the next monetary policy was more in discussion.

The central bank is scheduled to announce the monetary policy on March 18 and once again sizeable stakeholders are willing to see a cut in the interest rate like the previous monetary policy in February.

The previous monetary policy was greatly influenced by the 28.7 per cent inflation in January due to a rise in electricity, petroleum and gas prices. This time the food basket, due to Ramazan, is standing tall against the rate cut as the market believes the inflation may not come down like in February when it decelerated to 23.1pc.

The 22pc interest rate has already caused serious damage to the economic growth while it failed to counter the headline inflation. For the first eight months of the fiscal year, the average inflation rate stood at 27.96pc, exceeding the government’s initial forecast of 21pc.

To find out what the market is expecting in the upcoming monetary policy, Arif Habib Ltd conducted a survey taking feedback from various sectors.

According to the survey which included financial services like banks, insurance, and DFIs and non-financial services/manufacturing like exploration and production, cement, fertilisers, steel, textiles and pharmaceuticals, the opinion was divided about the possible interest rate cut.

“Our poll suggests that 53pc of respondents expect the SBP to maintain the policy rate at its current level, while 47pc anticipate a rate cut,” said the AHL research report.

Among those expecting a cut, 27pc foresee a reduction of 100 basis points, 17pc expect a cut of less than 100bps, and 3pc anticipate a substantial decrease of 200bps.

While opinions within the market are divided, some anticipate the Monetary Policy Committee (MPC) to maintain the status quo as Pakistan is in the process of negotiating a new IMF programme given that the Fund has consistently advised maintaining a tight monetary policy stance.

“We believe that a data-driven approach will be pivotal in forming the SBP’s decision-making process. This approach would likely take into consideration the downward trajectory of both headline and core inflation, which we anticipate to average approximately 17pc and 15pc, respectively, (on a 12-month forward basis), resulting in significantly positive real interest rates on a forward-looking basis,” said the report.

Published in Dawn, March 13th, 2024