The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is expected to maintain the status quo in its upcoming meeting scheduled for Monday, March 09, the second MPC meeting of the calendar year, market analysts noted. “The SBP is expected to keep the policy rate unchanged at 10.5%, signalling caution amid a rapidly evolving global backdrop,” said Arif Habib Limited (AHL) in a report on Friday. The central bank, in its previous MPC, decided to keep its benchmark policy rate unchanged at 10.5% . The decision was against market projections, which expected a cut in the key interest rate. AHL, in its report, noted that a flare-up of the US-Iran conflict has upset markets, sending oil and other commodities sharply higher and exerting pressure on financial markets worldwide. SBP likely to cut policy rate in upcoming MPC meeting, say analysts “Against this uncertain environment, the SBP is likely to maintain the status quo, preferring to wait and see how geopolitical developments unfold before adjusting policy,” said AHL. The report shared that the outbreak of conflict in the Middle East has already pushed crude prices higher, which, if sustained, could weigh heavily on Pakistan’s external account, given the country’s reliance on imported energy. “Estimates suggest that every $10 per barrel increase in oil prices could widen the current account deficit by around $2 billion annually. Headline inflation may also rise by roughly 0.4% directly, while indirect effects could be larger, pushing CPI further above the medium-term target range of 5-7%,” it said. On the other hand, remittances from GCC countries, which account for roughly 50-55% of Pakistan’s total inflows, may provide some near-term support. “In light of geopolitical tensions in the Middle East, expatriates may increase transfers home as a precautionary measure, with the upcoming Eid season further boosting inflows, cushioning the current account amid rising imported inflation,” it said. SBP seen holding rates steady as the oil rally clouds inflation outlook AHL, while citing its survey results, said that market sentiment ahead of the MPC strongly favours a pause. “Our survey result shows; 96% of participants expect the policy rate to remain unchanged, while only 4% anticipate a 50bps cut,” it said. Similar views were expressed by Topline Securities, another brokerage house, in its report on Friday. “Unlike the previous poll, where 80% were expecting a rate cut, now 92% are expecting status quo due to war like situation in region, which has jacked up Brent oil prices by 25% in the last 2-3 weeks,” said Topline. It shared that of the remaining 8%, 6% are expecting rates to increase by 25-50bps, and 2% expect rates to increase by 50-100bps. While no one expects a rate cut. “We also believe interest rates will remain unchanged as the impact of this regional war on domestic inflation in the form of rising oil prices and its possible shortage is yet to unfold. However, if this tense situation continues for a longer period, an interest rate hike to mitigate its impact cannot be ruled out,” it noted. Topline attributed the shift in market perception to “regional tensions, inflation impact of rising oil and LPG prices, and to account for any possible devaluation of currency”.