EUR 4.36 For Business Accounts Only

Intermarket Pulse: Pakistan Economy: Rising interest rates but wait for a dip in Banks

• We estimate CPI for Mar’18 will clock in at 2.9% YoY, which would be the lowest reading so far in FY18. This will be attributable to soft food inflation and a high base effect. Importantly, prices of certain perishable items had overshot in the same period last year but are coming off presently.
• We expect SBP to raise the policy rate again by 25bps in the coming monetary policy, taking it to 6.25% (DR to go to 6.75%). As in the last MPS, SBP will likely give weight to the weak external a/c position, even if inflation is not worrisome and real interest rates are comfortably positive. This will also complement the recent slip in PKR.
• The anticipated rate hike may act as a trigger for banks. That said, we flag that the sector’s 1QCY18 results will likely be on the weaker side. In this backdrop, the 14.1%YTD move in share prices seems hasty to us where we would wait for dips to build new positions. Preferred plays are BAFL and UBL.