Experts have said that the State Bank of Pakistan (SBP) is expected to keep the interest rate at 7 per cent for the next two months when they release a statement on the upcoming monetary policy on September 21 in order to ease the availability of finance for businesses which are still recovering from the disastrous impact of Covid-19.
CFA Society Pakistan released an MPS survey suggesting that 91 per cent of the research analysts such as fund managers, security analyst, and economic experts, have said that the SBP will not change the interest rates, however, 9 per cent have expressed that interest rates will further decline by 25 to 50 basis points to 6.75 per cent or 6.5 per cent subsequently.
SBP revises its policy rate every two months, affecting the actual interest rate in the market as the important lending and borrowing rates such as Karachi Inter-bank Offer Rate (KIBOR) are asserted on its basis. Hence, a change in the policy rate is positively correlated with the rates ultimately offered to the borrowers by the commercial banks.
A low-interest rate provides an incentive to borrow and invest rather than save and deposit money and vice versa.
Earlier, owing to the economic implications of the Covid-19, SBP had reduced the policy rate from 13.25 per cent on March 17, 2020, to 7 per cent to facilitate investment and provide ease of access to finance. Hence, if the interest rate remains the same, the economic entities including government, business and individuals will borrow more in order to restore their financial position.
“Inflation rate in August fell on a year-on-year basis and there is a chance of it falling more,” Intermarket Securities Director Research Raza Jafri said, adding that “it should allow the SBP to cut the interest rate but as the economy is recovering there is also a chance of prices increasing due to the increase in demand. Because of the uncertainty about the inflation rate, the SBP most probably would keep the interest rate constant.”
Experts also expect the interest rates to increase by 0.5 per cent to 1 per cent next year, cumulatively.
Former Pakistan Stock Exchange Research Officer Muhammad Munir said that “KSE-100, the benchmark rate of PSX. has also risen by almost 5,000 points since the last two months and the government would not want to slow down the market by increasing the interest rate.”