SBP may trim discount rate to 12pc

KARACHI - State Bank of Pakistan (SBP) may further cut its policy discount rate by 200 basis points, to 12 per cent in the upcoming monetary policy expected to be announced next month, The Nation learnt on Tuesday.
The capital market experts are looking for 300 to 400 basis points cut in the discount policy rate but they feel that the SBP might not go beyond 200 basis points cut in mark-up rate.
According to M. Imran, Research Analyst at First Capital Equities Ltd (FCEL), the forthcoming monetary policy for Q1-FY09 is probably to witness a slight decrease of 200 BPS cut in interest rate on expectations of stubborn movement in core inflation rate/index and a potential risk of volatility in exchange rate which could push the central bank to announce a slower reduction in the policy rate.
He also opined that current reversal in commodity prices may magnify the adverse balance of payment situation for which SBP would prefer to ease monetary policy a bit.
He also estimates headline CPI inflation (MoM) to hover around the level of 15.4 per cent for the period of May 2009 compared to May 2008s CPI level of 17.2 per cent, indicating an increase of 1.1 per cent over April 2009.
For FY09, we expect the headline inflation to stay at 21 per cent, highest in the prevailing decade whereas CPI is envisaged to be around 8 per cent for FY10, he projected.
Inflation, as measured by CPI, has been receding persistently during last few months with a peak level of 25 per cent in October 2008 to 17.2 per cent in April 2009.
The decline in CPI inflation (YoY) is attributed to a decrease of 2.7 percentage points in CPI food inflation during April 2009 compared to the preceding month and 8.5 percentage points compared to the same month last year.
In CPI non-food inflation also declined during the month under review compared to March 2009 but showed 6.1 percentage points increase compared to April 2008.
Meanwhile, in its inflation monitor, SBP has mentioned that CPI inflation month-on-month (MoM) basis remained unchanged during April 2009 compared to March 2009. CPI inflation (MoM) registered 1.4 per cent during the month under review (the highest level since November 2008). However, CPI inflation (MoM) compared to April 2008 showed a decline of 1.6 percentage points. While, CPI food inflation (MoM) was lower in April 2009 compared to both, the same month last year and the preceding month, CPI non-food decelerated relative to the same month but witnessed a slight increase compared to March 2009.
Easing inflationary pressures can also be seen in both measures of core inflation, non-food non-energy (NFNE) and 20pc trimmed mean. Both measures of core inflation (YoY) recorded decline during April 2009 compared to the previous month but were high compared to April 2008. NFNE inflation (YoY) was recorded at 17.7 percent during April 2009 compared to 18.5 percent in the previous month and 10.8 percent during April 2008.
Similarly core inflation measured by 20 per cent trimmed mean was also dropped to 17.6 per cent during April 2009 compared to 19.3 per cent in the preceding month and 14.1 per cent in the same month last year.