Although the May’13 CPI number suggests real interest rates of +ve 4%, we think the SBP will await clarity on materialization of foreign flows (e.g. KSA deferred payment facility, CSF etc.) before taking any decision on interest rates. Therefore, we expect status quo in the upcoming MPS but do not rule out rate cuts in subsequent monetary policies. Said Zia Sheikh Head of Sales AKD Securities
CPI reading for May at 5.1% came largely in-line with the consensus forecast, translating into 11M average reading of 7.5%. While we maintain our status quo call on policy rate (date yet to be unveiled), we acknowledge risk of possible resumption of easing by central bank as PML (N)’s plans to tackle BoP challenge appear to have increased market confidence on macro stability even without reentry into the IMF program. However, lack of concrete progress to date and uncertainty associated with upcoming revenue measures and ensuing inflationary impact prevent us from changing the call. Said Research Analysts Foundation Securities
We foresee the Central Bank maintaining Policy Rate at the current 9.5% in its Monetary Policy Statement, June 2013 given forecasted surge in CPI post July 2013 and possible T-Bill auction of PKR500bn to settle the outstanding power sector circular debt. Faisal Dhedhi head of Sales Al Habib capital markets.
We expect another monetary easing cycle starting from a 50bps rate cut in upcoming monetary policy.
Raza Raojani Elixir Securities
Although CPI has eased to lowest level since re-basing, it is the external account pressure that will take the limelight in monetary policy decision making. SBP foreign reserves have been steadily declining for some time now, reaching below two months of import bill. We anticipate monetary policy to remain unchanged on growing external account vulnerability as the new government is not opting for an immediate IMF program. We expect wait and see policy by SBP on current Macro economic situation of the country. Said research Analysts Optimus Capital