KARACHI: The decision by the State Bank of Pakistan (SBP) on Saturday to keep the policy rate unchanged at 5.75pc is in line with the expectations of the stock market stakeholders.

In some brokerage houses, analysts were at odds with their treasury department colleagues who anticipated a slight cut of 25 basis points. However, market experts described the SBP’s monetary policy announcement as a non-event for the stock market, saying the current trend on bourse is likely to continue.

The corporate sector is comfortable with the current policy rate. JDW Sugar Mills Finance Director Mohammad Rafiq said that the corporate sector was worried about the possibility of an uptick in the interest rate.

“The current bank credit rate at Kibor-plus-spread, which settles a shade below 7pc, is healthy, particularly for the highly leveraged companies. They will continue to keep a grip on financial charges, which greatly impact a company’s profitability,” he said.

JS Global Chief Commercial Officer Khurram Schehzad observed that inflation has been soft so far. There was room for at least a 50bps rate cut, but growing concerns on the external account front could have acted as a deterrent to any monetary easing, he noted.

Since there would be no impact on the bottom lines of corporate entities, the effect of the SBP’s decision on their stocks and the equities market was highly improbable.

According to an economist, the argument advanced in favour of the status quo in the monetary policy was that real interest rates still had room to further accommodate the pace of inflation, although the consumer price index (CPI) was rising.

Moreover, despite a widening budget and current account deficit and rising government borrowing, the policy rate ought to have remained at the same level in order to promote private-sector credit and GDP growth.

Other analysts mostly concurred. “In addition to higher inflationary expectations, a status quo is supported by the deterioration in external account dynamics — current account deficit (is) up 92 per cent along with upcoming $1.6-1.75 billion debt repayments in April-June,” said one analyst.


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