The SBP had kept its key policy rate unchanged at 9.5 percent in the last Monetary Policy announced in February 2013. Although, year on year inflation stood at 6.6 percent in March 2013 compared to 7.54 percent in February, most of economists and analysts expect that the SBP will keep the discount rate unchanged at 9.5 percent for next two months because of massive decline in forex reserves and excessive government borrowings to meet the high fiscal deficit. They believed that further cut in policy rate may put some pressure on Pak rupee in the wake of depleting forex reserves.
"The expected pressure on Pak rupee due to depleting forex reserves may force the SBP to keep discount rate at the current level," said Muhammad Suhail a leading analyst. Massive decline in forex reserves is a serious issue rather than low inflation, he added. The country's reserves have declined by some $1.4 billion to $11.758 billion during last six weeks because of repayments to the IMF on account of SBA programme. "The SBP is likely to keep policy rate stable at 9.5 percent owing to pressure on forex reserves," said Khurram Shahzad an analyst at Arif Habib Securities.
In the last Monetary Policy the SBP keeping policy rate stable had already mentioned that this may be difficult for it to continue with the same monetary policy stance in the wake of rising risks to macroeconomic stability and in the absence of structural reforms.
The situation is still the same and no improvement has been witnessed on structural reforms side, therefore the status quo is being expected, he added. "Market signals including rising T-bills yield is predicting that the SBP is likely to hold key policy rate at 9.5 percent," said Sayam Ali an economist at Standard Chartered.
In the last monetary policy SBP reduced the corridor rate to further improve the liquidity management, besides indicating to reverse its monetary stance in case the present drift persists, he added. "Although presently inflation is on decline, however still there is risk of inflationary pressure on the economy," he added.