By: Azee Securities Private Limited
Economy: In line with our expectations, State Bank of Pakistan has decided to keep its policy rate unchanged at 6%. Below we are presenting few points along with analysis.
Inflation would be below target in FY16: Inflation in Pakistan during FY16 continues declining trend as headline inflation further eases to 1.65% YoY as compared to 7.1% in 4MFY15 on account of lower food and oil prices. With subdued prices of global oil and other major commodity prices along with absence of any shock to supplies of food items, average inflation would remain below the FY16 annual target of 6% but inflation would remain in up tick during remaining 8 months of FY16.
Current account deficit in comfort zone: Current account deficit decrease by 72% to $532 million in 4MFY16 against $1,897 million in 4MFY15 due to lower oil imports bill, higher workers remittances and realization of Coalition Support Fund. However lower exports remain major worrisome due to lower cotton prices, relatively strong PKR against other currencies and energy breakdowns. Workers remittances up by 5% to $ 6,507 million in 4MFY16 versus 6,184 million in 4MFY15 provided much needed support. In addition, realization of investment inflows stemming from the ChinaPakistan Economic Corridor would indeed strengthen the external sector outlook over the medium to long term.