JS Securities Limited - JS Research.

Karachi -- January 24, 2023 (PPI-OT)

MPS briefing - SBP pins hopes on inflows

The Monetary Policy Committee announced a further 100bp hike, taking Policy Rate to 17% (in line with JS research forecast), reasoned with concerns on higher inflationary environment, including core inflation and the need to anchor the same.

Post MPS briefing was broadly around FX reserve management, a pressing issue with import cover at 4 weeks. Despite most obligations rolled over for FY23, the country still has debt payments of US$3bn by Jun-2023, in addition to CAD of ~US$4.5bn. As per SBP, these are expected to be financed by likely inflows from friendly countries and financial institutions.

Going forward, while do see another hike of 100bp in next monetary policy but SBP will likely shape monetary policy in light of fiscal measures adopted by the government in the run up to the IMF program.

Policy Rate up 1% to 17% on higher inflation concerns

In-line with our forecast, the Monetary Policy Committee announced a further 100bp hike, taking Policy Rate to 17%. The benchmark interest rate has now reached a 25-year high, where last the interest rate (which was the Discount Rate earlier) were at these levels in the late 90s. The increase was reasoned with concerns on higher inflation, including core inflation and the need to anchor the same. The hike adds to recent developments that indicate the government and regulator (SBP) are making all efforts to revive the IMF program, which has not shown much progress on its 9th review pending since Nov-2022.

FX flows management

Progress on the IMF program is vital as it would unlock fresh FX inflows for Pakistan, which at present has an import cover of just 4 weeks. The same concern also echoed in the briefing post Monetary Policy announcement where...