Thursday, November 14, 2019

Pakistan: Rate hike of 100bps likely in MPS

Featured

Trump said: Sondland is great American now President’s famous ‘U-turn’

President Donald Trump has a history of distancing himself from associates who have found themselves in legal trouble or...

Babri mosque: Indian Supreme Court ruled in favor of Hindus in a dispute over a religious position with Muslims

India's Supreme Court on Saturday ruled in favor of a Hindu group in a long-running legal battle over a...

France Visa: New point-based skilled immigrant program to be enforced by summer 2020

France will introduce new point-based skilled immigrant program (France Visa), will come to force by summer 2020. French government...
Zubair Yaqoob
Zubair Yaqoob
The author has diversified experience in investigative journalism. He is Chief content editor at wnobserver.com He can be reached at: [email protected]

Analysts forecasts another rate hike of 100bps in policy rate from 10.75% to 11.75% in the upcoming monetary policy which is to be announced on May 20.

The aggressive monetary tightening is expected to continue by the central bank as it is going to be the seventh consecutive rate hike.

The monetary tightening is expected on the back of;

  1. i) rising inflationary pressure due to rise in prices of petroleum products and essential food items coupled with continuous slide of PKR leading to surge in prices of imported and local products (sold on import parity).
  2. ii) mounting Fiscal Deficit despite sharp cut in PSDP and rationalization of tariffs and duties, and

iii) narrowing real interest rate as it declined to 1.66% in May’19 compared to last four year average of 2.75%.

Analysts believe the State Bank of Pakistan is adopting a proactive stance to increase policy rate on account of higher inflation in upcoming months alongside attempting to curtail the current account deficit.

Real Interest Rate is Always on Higher Side in IMF Era

Since Oct’11, we have observed that during International Monetary Fund (IMF) period real interest rate (RIR) has always remained on the higher side at an average of 3.1% compared to an average of 2.2% in non-IMF period. This depicts that the IMF expects an increase in discount rate for sustainability despite lesser CPI during the period.

Money Market View on Monetary Policy

Furthermore, it seems like the money market has already incorporated the rate hike which is essential to fulfill the gap of 61bps between 12-M T-Bills (11.86%) and Discount Rate (11.25%).

Survey on Monetary Policy

AHL have conducted a short survey with institutional investors regarding their view on 1) interest rate in the upcoming Monetary Policy Statement (MPS) and 2) outlook on interest rates going forward.

Majority of the respondents (53%) are of the view that the interest rates are likely to see a 100 bps spike in the upcoming MPS. Only 12% of the respondents opined that the rates may see a 150 bps surge.

With regards to whether interest rates have peaked, 71% of the respondents are of the view that the rate hike era is yet to halt and will see further hikes going forward.

Survey asked the poll respondents about their 1-Yr forward view on the interest rate cycle. 48% of the respondents are of the view that interest rates will see a surge of 50-100 bps in the next one year. 29% of the respondents do not see any further rate hike following the upcoming MPS.

Inflation Outlook

Analysts expect May’19 inflation to settle at 9.59% YoY compared to 4.19% in May’18 and 8.82% in Apr’19, respectively. Analysts at AHL expect inflation to continue its upward trajectory in upcoming months amid low base effect of last year, sharp increase in prices of perishable goods (fresh vegetables and fresh fruits), lagged impact of adverse exchange rate movements and gradually increasing international oil prices which may result in higher prices of local petroleum products (MoGas and HSD). This may keep inflation in the range of 9.0-9.5% for the next four months.

Read also: KSE-100 tumbles 805 points on Rupee devaluation, MPS

 

Zubair Yaqoob
Zubair Yaqoob
The author has diversified experience in investigative journalism. He is Chief content editor at wnobserver.com He can be reached at: [email protected]

Latest News

Nearly five million unauthorized migrants lives in Europe

In Europe, between 3.9 and 4.8 million migrants without a valid residence permit lived in 2017. This estimate comes...

Germany announces an increase in the value of arms exports to 7.42 billion euros

The German government said in a statement that it issued arms exports permits worth 7.42 billion euros during the first 10 months of this...

Death toll in Kabul blast rises to 12 dead, 20 wounded

Kabul blast: The Afghan authorities announced the death toll of the car bomb explosion in the capital Kabul to 12 people, including children, as...

Venice fills with water after heavy rains and flood

Venice: Destruction and devastation caused by heavy rains on many streets and squares of Italy, which turned into floods and severe flooding destroyed dozens...

Napkin stuck in President Trump’s shoes after coming off his car .. Photos

Reuters news agency published pictures of US President Donald Trump as he got out of his car, and was noticed after the descent of...
- Advertisement -

Related News