Karachi, April 08, 2022 (PPI-OT): Pakistan Economy: Policy rate increased by 250bps to 12.25%

In an emergency meeting of the MPC, SBP increased the policy rate by 250bps to 12.25% – a response to fast depreciating rupee, higher than expected inflation readings and, commodity price levels not inline with base case for policy decision making.

MPC statement stated that the current monetary policy settings are appropriate given the circumstances (real interest rates is now positive for the first time since COVID) however refrained from giving any forward guidance which has been a usual part of previous monetary policy statements.

Other measures taken by the SBP are, i) increasing the Export Refinance Rate (EFF) to 5.5% from 3% previously, and ii) increasing import cash margin on additional 177 products in order to further slowdown the demand.

SBP also highlighted that the IMF program is ‘on hold’ until political stability is not achieved in Islamabad however, despite delays in dollar flows, the Central Bank remains comfortable on available financing sources covering needs.

From stock market vantage, politics is likely to take precedence over systematic factors in driving stock valuations in the near term, however earnings outlook will have the final say in terms of stock performance in the medium run. In this backdrop, banks are obviously the key beneficiary of monetary tightening (MEBL and UBL) while we see leveraged cyclical companies (e.g. CHCC, PIOC, Steels), Fertilizers and textiles to be worst-placed.