By: Intermarket Securities Limited
Pakistan Economy: Dec’15 CPI general/NFNE inflation is expected to stand at 3.8%YoY/4.1%YoY compared with 2.7%YoY/4.0%YoY in Nov’15. Though pick‐up in NFNE inflation is expected to be marginal, core CPI inflation will likely be fueled by erosion of high base effect. Despite the expected uptick, we expect inflation to remain within comfortable bounds and allow SBP to maintain status quo in Jan’16 MPS.
From a broader perspective, downward inflation trend, which began in Oct’14 owing to fuel price rout, saw a reversal in Oct’15 as high base effect started receding. Inflation has been on an upward trajectory since then and will likely continue along its latest course where CPI could cross 5%YoY by Feb’16.
Interest rate liftoff may begin as early as Mar’16 based on our inflation projections. That said, the pace of interest rate liftoff will likely be gradual where we see DR in the 7.5‐8.0% range by end‐CY16.