Pakistan Economy: Unlike Greenshirts, SBP will not drop the balL
- In a rare but much-needed press briefing, Governor SBP, Dr. Reza Baqir yesterday briefed on the broader economic outlook with a focus on the exchange rate, monetary policy, and the IMF program.
- The governor’s statement reiterated the adoption of ‘market determined’ exchange rate regime – a more fundamental based framework- with limited intervention from the central bank while clearly ruling out the free float based exchange rate regime.
- The plain and explicit guidance on exchange rate regime is a clear positive and may bring some stability to the current volatile FX market, in our view. Considering REER level (May’19 end at 96.97, US$/PkR parity at 148.1), we think the rupee will stabilize around current levels over the medium term, with range bound two-way movements in the short term.
- On monetary policy, the central bank will continue to adopt inflation targeting framework in setting interest rates. Considering the scale of fiscal adjustment (PkR1.4trn additional revenue target) and gov’t inflation estimate of 11-13%, we expect more tightening on the horizon however in a more staggered manner.
AKD Research
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