Karachi, August 19, 2022 (PPI-OT): Pakistan Economy: Market eyeing status quo

Since the SBP’s last MPS meeting in Jul’22, where the benchmark interest rate was increased by 125bps, things have taken a turn for betterment. The currency, after falling to ~240/US$ has staged a remarkable comeback to stand at ~216/US$, while the yields on country’s Euro bonds have recovered to half from their peak and country is inching closer to IMF’s next tranche of US$1.2bn after friendly countries came forward to offer a support package of ~US$6.0bn.

However, inflation, that has been making new highs over the past few months, touched a decade high of 24.9% in the last month, surprising our estimates on the higher side on the back of larger than expected jump in Housing index. The headline inflation is expected to trend higher still in the coming months and is likely to peak during 4QCY22 to around 26% mark due to i) rapid depreciation in PkR, ii) revision in fuel and energy prices and iii) food inflation.

Focus now shifts to 6th MPS of CY22 which is scheduled on Monday, 22nd August 2022. Since the last Monetary Policy Statement (MPS) on Jul 07, 2022, the yield movements on GoP instruments have shown divergent trends where the yields on ST papers have increased by 69bps – 120bps while the yields on longer tenor papers have actually fallen by 20bps – 93bps. The yields on auction of new bonds have however flattened out.

SBP’s injection in to the banking system continues unabated where the central bank injected over a PkR1.0trn into the banking industry which was reinvested in to the government papers by the banks.