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MPS Preview: Status-quo to mild hike expected

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August 22, 2022 (MLN): All eyes are on the outcomes of the State Bank of Pakistan’s Monetary Policy Committee (MPC) meeting today, with most analysts expecting a status-quo to mild hike in the policy rate.

Things have improved from the last MPC meeting which took place on July 7, where the central bank announced a 125bps hike in the policy rate to anchor inflation and cool down economic activities to control demand.

With commodity prices now decreasing in the international market and the nascent recovery in PKR which likely to slow down the pace of inflation which reached a peak in August on account of energy price hikes and high food inflation. Since the bulk of energy price increase has already been passed on, inflation is likely to be on a downward trend in the coming months.

Additionally, the country is inching closer to receiving the next $1.2 billion tranche from the IMF after friendly nations stepped forward to offer a support package of $6.0 billion. The currency, which had fallen to 240/USD, has staged an incredible comeback to stand at 216/USD. At the same time, the yields on the country's Euro bonds have recovered to half from their peak. These developments are likely to ease the pressure on the external side and decrease the likelihood of sharp monetary tightening.

Amid moderating commodity prices and SBP’s pragmatic policies to curb imports, the concerns regarding the increase in current account deficit have started to subside. In July, the import, plummeted by 10.4%YoY to $4,99bn on account of ease in international commodities prices and the government’s tight scrutiny of unessential items imports.

On the money market front, the secondary market yields have displayed contrasting trends since the last MPC meeting. PKRV yields have increased within the range of 40 bps to 164 bps as of August 19, 2022, for tenors 1M to 12M. While for longer tenors 2Yrs to 20Yrs, the yields have actually declined within the range of 19 bps to 121 bps.

“With yields on short-term paper rising, we expect the central bank to increase the policy rate by 50bps to 15.5% and we see no further rate hikes beyond that point”, an analyst at AKD Securities said.

Further, as per the latest auction of T-bills on August 10, 2022, the yields have leveled out as they remained unchanged at 15.74%, 15.8%, and 15.93%, for three, six, and twelve-month respectively. Moreover, the majority of the participation was witnessed in 3M papers, indicating bond market players envisaging further interest rate hikes. The unchanged cut-offs may be explained by high liquidity in the market.

On the KIBOR side, interbank rates since the last MPS have increased within the range of 44 bps to 117 bps respectively for 1M, 3M, 6M, 9M and 1Y tenors as of August 19, 2022.

Based on the above-discussed scenarios, most of the market participants believe that SBP will keep the policy rate unchanged. In a survey conducted by MG News, 9 out of 6 brokerage houses expect a status-quo in today’s MPC meeting, while 3 brokerage houses predicted a rate hike ranging from 50-150 bps.


Brokerage House


Taurus Securities

Unchanged at 15%

Spectrum Securities

Unchanged at 15%

Topline Securities

Unchanged at 15%

Sherman Securities

Unchanged at 15%

Pearl Securities

Unchanged at 15%

Foundation Securities

Unchanged at 15%

AKD Securities

hike of 50 bps

JS Global

hike of 150 bps

Adam Securities

hike of 100 bps

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Posted on:2022-08-22T09:17:54+05:00