Pakistan Economy: Peak inflation in September; a rate cut in November?
As per our estimates, inflation has peaked in Sep’19. Consumer Price Index (CPI) inflation for Sep’19 was reported at 11.37%/12.54% on new/old base respectively.
We expect average inflation on new base to be in the range of 10%-10.25% for FY20. This takes real interest rates to 3% from average of 2% during the last 3 years given current State Bank of Pakistan (SBP) Policy Rate of 13.25%.
SBP is scheduled to announce its Monetary Policy in mid-November. Based on above inflationary expectations, we are of the view that a rate cut of 50 basis points is likely and shall set the tone for further rate cuts in future.
We see low likelihood of any significant cuts in the SBP Policy Rate that may still remain elevated because of ongoing International Monetary Fund (IMF) program and the need to maintain and build FX reserves.
Recent phenomena of carry trades, which have brought in US$328mn in portfolio investments (short term T-Bills) from Jul 1-Sep 27 will also be negatively affected if interest rates decline significantly in next few years.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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