AKD Securities Limited Equity Research – Daily Report

Karachi,
July 15, 2019 (PPI-OT): Pakistan Economy: Monetary firepower remains relevant

The
Monetary Policy Committee (MPC) of the SBP is scheduled to announce monetary
policy tomorrow (Jul 16’19), where we expect it to raise the policy rate by
another 100-150bps (policy rate of 13.25-13.75%) its 8th hike since Jan’18.

Ensuing
the IMF’s Executive Board approval for the 3yr ~US$6bn EFF program, this
upcoming monetary policy holds significant importance, as it will confirm the
monetary elements of policy framework the SBP will follow.

Our rate
hike expectation is premised on i) steep rise in inflation in 1QFY20 – though
largely driven by adjustments in energy costs and taxation measures – and ii) a
need for more tight monetary policy to ensure macro-stability, particularly on
the external side.

For the
month of Jul’19, we expect headline inflation to rise sharply to 10.45%YoY vs.
8.89%YoY in the preceding month and 5.83%YoY in Jul’18. This sharp increase in
inflation primarily stems from i) utility rate hike (i.e. upward revision in
gas tariffs) and ii) quarterly housing rent adjustment.

From the
market’s vantage, investors are keenly awaiting the upcoming monetary policy
decision (signified by drab volumes) and results season (including annual
payouts) to re-position portfolios accordingly. We believe wider expectations
of a 100bps rate hike are largely priced-in, where a surprise both on upside
and downside could sway investor expectations accordingly.

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