KARACHI: The State Bank of Pakistan (SBP) is likely to consider the repercussions of high prices of oil and other commodities in the international markets, while announcing the monetary policy, which is scheduled for March 8, 2022.

The SBP announced the first inflationary pressureof this year on January 24, 2022 and kept the key discount rate unchanged at 9.75 per cent. However, in the last three policy decisions, the central bank raised the discount rate by 2.75 per cent from 7 per cent to 9.75 per cent.

In the upcoming policy decision, the Monetary Policy Committee of the SBP will focus on the ease in inflationary pressure due to a package announced by Prime Minister Imran Khan to reduce the prices of petroleum products and electricity.

However, on the flip side, the rising oil and other commodity prices in the international markets owing to Russia-Ukraine war would remain a major concern.

Analysts said the upcoming policy announcement will be an important decision, as the market will keenly follow the policy directives of the central bank when the country is currently faced with several economic challenges.

The State Bank in its last monetary policy statement had said that the decision was in line with the previous forward guidance provided by the SBP and keeping in view the consideration for economic recovery.

In its last monetary policy statement the SBP said: “The current real interest rates on a forward-looking basis are appropriate to guide inflation to the medium-term range of 5 to 7 per cent, support growth and maintain external stability. If the future data outturns require a fine-tuning of the monetary policy settings, the MPC expected that any change would be relatively modest.”

Since the last monetary policy statement, major developments have taken place and the new data is now available, which will likely to be considered by the central bank in the upcoming monetary policy statement, analysts at Topline Securities said.

Due to Russia-Ukraine crisis, the commodity prices have witnessed a sharp increase, which has consequences on inflation and the current account outlook.

The Arab light oil prices have increased by over 21 per cent since the last monetary policy announcement.

Owing to sharp spike in the commodity prices, concerns over inflation and the current account outlook, secondary market yields on T-Bills and PIBs have increased 25 to 30 basis points since February 18, 2022.

Similarly, the yields on Eurobond with the maturities of 2024/2027 have also risen by 200 to 300 basis points.

The current account deficit in January 2022 stood at $2.6 billion, which was higher than expectations taking the current account deficit at $11.6 billion during the first seven months (July-January) 2021/22.

Besides, inflation clocked-in at around 12.2 per cent in February 2022 versus 13 per cent in January 2022 and 12.3 per cent in December 2021.

The analysts said that in a surprise move, Prime Minister Imran Khan recently announced cut in the prices of petroleum products by Rs10/litre and the power tariff by Rs5/unit. This, at a time when the international oil prices are rising sharply and Pakistan had agreed with the IMF to increase the petroleum development levy (PDL) on petrol up to Rs30/litre, is seen as a populist move in the wake of increasing political pressures.

They expect the cost of this would be around Rs800 billion on an annualised basis, which is around 1.3 per cent of GDP.

The analysts said though the commodity prices recently have risen sharply but keeping in view the SBP’s focus to sustain economic recovery and its last forward looking guidance, we anticipate no change in the upcoming monetary policy statement.

The decision not to increase petroleum prices till June 2022 may also provide some cushion to the inflation outlook.

Keeping in view the latest developments, the SBP may also likely to revise its forecast for the current account deficit (projected at 4 per cent of GDP in FY22) and inflation (9 to 11 per cent in FY22).

Topline Research conducted a monetary policy survey to judge the view of the financial market participants on the upcoming monetary policy statement. As per the poll, there was a divided opinion on the result of the upcoming MPS with around 53 per cent of the participants believe that there will be no change in the policy rate, whereas 44 per cent of the participants believe that there will be an increase in the policy rate.

Only 3 per cent of the participants anticipate cut in the policy rate.