With lower than expected inflation numbers for two consecutive months, analysts have now revised their expectation of a policy rate hike in the remainder of the current fiscal year – something they believed was inevitable just a few months ago.
In the first review of the
But after clocking up at 10.9% in November, the Consumer Price Index (CPI) first slipped to 9.2% in December and then reached 7.9% in January. This put a question mark over the market consensus that the State Bank of
Although the IMF has recently increased its CPI forecast for fiscal year 2013-14 from 7.9% to 10% expecting that inflation will soon rise again, analysts still believe CPI will remain in the single digit for the rest of the year.
The seven-month inflation since the beginning of the current fiscal year has been 8.8%.
Moreover, the trend in the money market shows an overwhelming majority of investors expects the rate will be kept flat at 10% in the next monetary policy announcement.
For instance, in the latest auction of market treasury bills held on
Effects of US tapering
Another reason most analysts initially expected the SBP to increase the discount rate was the vulnerability that a number of emerging economies face due to the United States Federal Reserve’s tapering.
The US has announced that it will reduce its monthly bond buying programme by
“We believe that Pakistani markets never really benefitted from the liquidity injections by the Fed. Hence, any outflow from
Citing data from 2008 to 2010 during which the total holding of US bonds and mortgage-backed securities by the Fed increased from
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