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AKD Securities Limited – AKD Daily (November 24, 2022)

Karachi, November 24, 2022 (PPI-OT): Pakistan Economy: MPS and key economic indicators survey

Since its Jul’22 meeting, when the interest rates were hiked to 15%, the MPC has kept the benchmark interest rates unchanged, with industrial activity slowing down as intended by the SBP. The currency has been trading in a range between PkR218/US$ and PkR224/US$ since the last Monetary Policy held on October 10, 2022. However, the volatility that was earlier seen in the interbank rates has now shifted to the open and black markets, where spreads have reached PkR8-10 on every US$.

IMF’s 9th review is expected to commence shortly, which would decide the fate of the next disbursement. However, ahead of the review, media reports have indicated some snags being hit, with respect to the subsidies accorded to the textile and agricultural sectors, and the assessment of the floods and the consequent impact of the economy.

Inflation has persisted north of 20% so far this year, averaging 25.5% so far in FY23. Sep’22’s inflation reading was noteworthy, clocking in below expectations at 23.2%YoY, achieved through administrative measures – i.e. the decline in electricity charges through the removal of Fuel Charge Adjustments for consumers with consumption south of 300 units. However, the impact of the same was reversed in the Oct’22 inflation reading, which clocked in at 26.6%.

Focus now shifts to the final MPS of CY22 – scheduled to be held on November 25th 2022. We expect the MPC to keep interest rates unchanged in its meeting tomorrow. Taking cues from the secondary markets, yields of shorter tenor bonds have remained somewhat flat, increasing in the range of 13-17bps. However, longer tenor bonds saw an increase in yield ranging from 10 bps to 45bps. Further, looking at the last 4 auction results, the amount raised has skewed in favour of shorter-tenor MTBs, i.e. 3M T-bill.