EUR 4.64 For Business Accounts Only

Intermarket Pulse: Mar’17 CPI likely to surprise; expect normalization from next month

• We estimate Mar’17 CPI/NFNE to clock in at 4.78%/5.26%YoY (up 69bps/11bps MoM), driven majorly by an uptick in Food prices (up 1.22ppt MoM). Prices of Tomatoes & Chicken are up 27%MoM & 83%MoM, respectively, translating into a combined impact of around 74bps MoM on CPI. This trend, however, is likely to normalize in the coming months, in our view.

• In the last monetary policy meeting, SBP decided to keep Policy Rate unchanged, potentially ruling out possibility of further interest rate cuts, in our view. Our FY17F CPI estimate of 4.2%YoY suggests delay in interest rate liftoff early next year. Swifter acceleration in CPI can emanate from recent rebound in domestic petroleum product prices.

• Yesterday’s T-Bill auction reflects on the market’s expectation of no major changes in SBP’s monetary policy stance in the short run; cut off yields of 3M/6M T-Bills inched up by 4/2bps to 5.99%/6.01%. However, yield on PIBs have notched up by 40-45bps MoM, reflecting growing expectation of an uplift in interest rates over the medium term.