Pakistan Economy_MPC to maintain interest rate, (AKD Daily, Mar 17, 2021)
AKD Daily
Pakistan Economy: MPC to maintain interest rate
- Preliminary price trends in Mar’21 suggest pickup in inflationary pressure with inflation for the month likely to clock in at 9.78%YoY vs. 8.70%YoY in Feb’21 with low base effect partly playing a part. Sequentially, relative ease-off in inflationary trends could be witnessed with inflation likely to be recorded at 1.0%MoM compared to 1.8%MoM in Feb’21 primarily due to negative fuel price adjustment in electricity rates.
- Monetary Policy Committee (MPC) of the SBP is due to meet on Mar 19’21 where we believe authorities to adopt ‘wait and see approach’ with greater emphasis put on potential headwinds to economic recovery from rising COVID cases (7.1% positivity rate) vs. near term higher inflation outlook (avg. inflation for the next 3M stands at 11.1%).
- Moreover, SBP in its last briefing hinted upon external account stability defining monetary policy course in the near term. In this regard, while increasing commodity prices pose risks to gains on external front, potential inflows from IMF, Eurobond Issuance, and RDA balance such risks.
- Ease-off in political climate is clearly positive from market’s vantage, near term outlook is dependent on developments relating to fiscal targets and inflationary pressure led expectation on interest rate hikes. We do not foresee rate hike in the upcoming monetary policy announcement while authorities are expected to continue balancing economic growth with inflation in the medium run. We continue to like Cements, Steel and Construction-Allied where top picks include LUCK, DGKC, MLCF and MUGHAL.
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