In a surprise development, SBP conducted an ad hoc meeting today and taking cue from the ongoing macroeconomic situation particularly persistent double-digit inflation, worsening external account, rising domestic & international bond yields and weakening PKR decided to raise policy rate by 250bps to 12.25%.

We opine this to be a timely move by the SBP which going forward will result in softer CPI readings, stable exchange rate and moderation of local demand. We believe that this hike has already been incorporated in interest rates where 6-month T-Bill cutoff shot up to 13.25% in the auction held yesterday. Today’s KIBOR also was quoted at 13.19%, as a result. Given this, we believe that this large Policy Rate today will likely have a limited impact on market sentiments in the future.

Courtesy – BMA Research