The upcoming monetary policy stands at a crossroads of either to protect the feeble economic recovery or curb the looming inflationary pressure.
With real interest rate expected to remain in the positive territory, Topline Securities anticipate the central bank would follow the regional trend of providing impetus to the economic growth and cut discount rate by 50 basis points in the monetary policy scheduled on November 30. The State Bank of Pakistan (SBP) surprised the market in the previous announcement on October 8 by slashing discount rate by 150 basis points.
Given growth consideration as the key determinant, weakness in the fiscal and the current account would continue to pose a threat to our assessment of monetary easing cycle in the second half of fiscal year, says a Topline Securities research note.
Discount rate cut was estimated on the basis of likely fall in inflation, positive real interest rate and stability in the rupee depreciation against the dollar, adds the note. The central bank is expected to continue focusing its attention on supporting economic growth, which is in line with strategy adopted by other central banks of the regional.
Fears of economic slowdown has forced various central banks of regional countries Indonesia, Australia, Taiwan and Singapore to slash their policy rate recently, as their attention shifted from tackling inflation towards providing support to economic growth. Furthermore, central bank of Thailand and Malaysia are expected to follow the same.
Private sector credit has contracted by Rs48.3 billion during the current financial year against disbursement of Rs23.7 billion in the same period last year.
Published in The Express Tribune, November 24th, 2011.