Karachi, January 24, 2023 (PPI-OT): Pakistan Economy: MPS Review – 100bps hike as per expectations

The State Bank of Pakistan increased the interest rates in the country by 100bps in the Monetary Policy meeting held yesterday, bringing the policy rate to 17%, in line with AKD’s expectations. The hike was based on the high inflation rampant in the country, especially food inflation.

The central bank had earlier estimated Pakistan’s real GDP growth at ~2% for FY23, with downside risks emerging in the form of curtailed business activity in the country and risks to agricultural output.

On the external front, the SBP has indicated that US$6bn has been rolled over, with another US$9bn already paid. Of the US$8bn left over, US$3bn is expected to be rolled over, whereas US$2.2bn in bi-lateral loans are likely to be refinanced, which puts Pakistan’s liability for the rest of the fiscal year at ~US$2.8bn.

Given the continuation of inflationary pressures in the foreseeable future, we cannot discount the possibility of another rate hike in the remainder of the year. We expect the SBP to hike interest rates by another 100bps in the next 5 months.

The hike is beneficial for companies with cash-rich balance sheets, such as ENGRO, INDU, FFC and E and P companies, including OGDC and PPL. On the flipside, the hike is detrimental to cyclicals, which have debt on their balance sheets, which would include the Steel and Cement sectors.