Policy rate maintained in Mar’14, easing cycle may start from May’14 – FS Research
By: Mohammad Fawad Khan,
92 21 5612290 Ext 338
Foundation Securities (Pvt) Limited
The central bank announced its bi-monthly monetary policy on 15th March and decided to hold interest rate at 10%. The decision surprised the consensus which had expected 50bps rate cut (FSL: status quo). The central bank has expectedly treaded cautiously given recent improvement in BoP is not enough to warrant policy easing despite benign inflationary outlook and positive real interest rate. We believe the central bank is likely to assign more weight to growth and can kick start easing cycle as soon as in May’14.
The capital markets are likely to exhibit a mixed response. For equity market, banks may see a relief rally. That said, we believe hunt for yield players and beneficiaries of rupee appreciation will continue. Banks, Autos, Cement, E&Ps and Power (non-consensus) are preferred sectors.
Policy rate kept unchanged: The State Bank of Pakistan (SBP) announced bi-monthly monetary policy decision on 15th March and decided to maintain status-quo on policy rate (at 10%) for the next two months. In the pre-monetary policy announcement, the opinion poll was more tilted towards rate cut. We had expected the central bank to maintain rate given our view that reserve build up is not enough to induce the bank to kick start easing cycle.