Karachi, September 21, 2021 (PPI-OT): Pakistan Economy: SBP moving interest rate needle by 25bps

In yesterday’s meeting, the Monetary Policy Committee (MPC) of the SBP delivered a 25bps hike in policy rate to 7.25% – the third Asian Bank demonstrating the need to begin tapering-off accommodative policies as the country’s economic recovery becomes more entrenched (FY22 GDP forecast at 5%).

The SBP noted that demand-side pressures have become more noticeable since the last MPC where imports have surged 67.7%YoY in 2MFY22 to US$11.4bn, flaring up concerns on external account and resulting in PkRUS$ parity depreciating by 4.6% since last MPC meeting.

The rate increase was against our expectation of Status Quo, where by moving the interest rate needle, the Central Bank has given credence to strong economic performance carrying through in FY22, while suggested gains achieved on external side are likely to remain intact, along with currency consolidating at current levels.

With further monetary policy interventions not being ruled out, we expect return of long-gone interest in Banks where we like mid-plays given their higher exposure to lending arrangements. IMF review would be the key near-term checkpoint for market’s performance while we advocate building positions in Techs and Textiles.