AKD Securities Limited Equity Research – Daily Report

Karachi, February 01, 2019 (PPI-OT): Pakistan Economy: 25bps hike speaks volume

Against the consensus expectations of the status quo, the Monetary Policy Committee (MPC) has raised the policy rate by 25bps to 10.25%. The token rate hike of 25bps marks a more calibrated policy response from the Central Bank, striking a balance between growth and macro-imbalances.

Also, the rate hike signifies a continuation of ongoing monetary tightening but in a more staggered manner, and in line with our earlier expectations of calibrated tightening.

Considering the creeping up inflationary pressures amidst elevated macro-imbalances, we expect tightening to continue, with a further 125bps hike in CY19. A more measured policy response from the Central Bank is likely to be undertaken going forward, dispensing relatively moderate 25-50bps hikes.

From market vantage, this hike is not a deal-breaker in terms of raised cost of borrowing (0.32% dip in AKD Universe ex Banks annual earnings), mostly in Cements (dip of 1.1%) Fertilizers (0.9%) and OMCs (0.8%), whereas index heavy Banks (interest rate sensitivity of 1.1x) and E and Ps (other income gains from PIBs) stand to gain.