By: InterMarket Securities Limited
Pakistan Economy: Inline with our expectations, the SBP has kept the DR/TR unchanged at 6.5%/6.0%. Reasons behind this decision include expectations of (i) pickup in inflation going forward, (ii) higher LSM growth and (iii) greater private sector credit offtake. We believe recent PkR/US$ weakness (3.7%FYTD depreciation) may have influenced the SBP decision as well.
As written earlier, this seems to be the bottom of interest rate cycle with an eroding high base effect to reduce quantum of +ve real interest rates in the coming months. We see interest rates remaining at current levels for the next two MPS decisions, before possible liftoff in May’16. Int’l oil prices/exchange rate can both delay or bring forward an interest rate upcycle.
Considering analyst consensus heavily favored status quo in the Nov’15 MPS, the equity market is likely to take little notice of Saturday’s decision. That said, Banks could be inline for a mini-rally considering expectations of higher interest rates ahead and their own 18.8%CYTD/1.6%FYTD underperformance vs. the Index.