Lahore - The State Bank of Pakistan (SBP) will announce Monetary Policy this Saturday for the next two months.

Although current low inflation indicates that some room exists for monetary easing, but status quo is expected to continue as the inflation reading is now on upward trajectory while there are fears of trade deficit accumulation.

According to experts, Pakistan Consumer Price Index is set to rebound in the ongoing fiscal year as the benefits of low food prices are fizzling out.

CPI in July 2016 is expected at 3.8 percent, up from 3.2 percent in June 2016 and 1.8 percent in July 2015.

While CPI is likely to rise to 5 percent by 2016 end owing to ending base effect where full year FY 2016-17 average CPI is estimated at 5 percent.

Experts have predicted moderate recovery in fuel prices but say inflation could rise more than what is feared if commodity prices increase unexpectedly. Financial experts from Topline expect surge in CPI reading to 5 percent by 2016 end, from 3.2 percent in June 2016, owing to ending favourable base effect.

Current account balance, on the other hand, could also worsen due to less exports and likely imports for development projects.

But the impact of higher imports would be partially neutralized as most of the imports meant for CPEC projects would be partly financed by Chinese investments/lending.

For upcoming MPS, the experts foresee status quo where the board would like to see the impact of recent 25bps easing, inflation trend and fallout of global event first.

“Going forward, we see up to 50bps rise in policy rate as rising inflation, possible trade deficit and currency pressures could build case for higher interest rates in early 2017,” said an expert.

In the region and beyond, central banks have adjusted their key policy rates between 25bps to +50bps during 2016, apart from Egypt (1 percent), Philippines (-1 percent) and Nigeria (+2 percent).

As per the indications given by SPI numbers released by Pakistan Bureau of Statistics, Consumer Price Index is estimated to surge by 3.8 percent in July 2016 compared to 3.2 percent last month.

On month on month basis, it is expected that CPI Index will climb by 1 percent due to surge in food prices and quarterly review of House Rent Index.

On the other hand, stable petrol and HSD prices would provide some support.

Food inflation (34.8 percent weight in the CPI) is likely to surge by 1.1 percent MoM explained by the likely 6.2 percent higher perishable food prices (4.99 percent weight). Non-perishable food prices (29.8 percent weight) may witness a slight increase of 0.3 percent MoM.

As per SPI numbers, the prices of Potatoes and Tomatoes have jumped up by 39.7 percent and 11.9 percent, respectively. Apart from that, Eggs and Wheat flour prices have increased by 8.6 percent and 0.6 percent, respectively.