Topline Research conducted a Poll from market participants to assess their view on the upcoming Monetary Policy announcement scheduled on Jan 23, 2023 and their key macro estimates.
As per the survey, majority of the participants (74%) expects policy rate to increase by 100-200bps. Out of these, 37% expects 100bps increase, 18% anticipate 150bps increase and 19% is eyeing 200bps increase.
Out of the remaining participants, 2% expects more than 200bps increase, 5% anticipates 50bps increase whereas 18% is eyeing no change and only 2% expect a rate cut.
Since last monetary policy statement on Nov 25, 2022, CPI inflation increased to 24.5% in Dec 2022 as compared to 23.8% in Nov 2022. Urban core inflation (Non Food Non Energy) stood at 14.7% in Dec 2022 vs. 14.6% in Nov 2022. Rural Core Inflation increased to 19.0% in Dec 2022 as compared to 18.5% in Nov 2022.
Given supply side disruptions and increase in prices of certain food items during last few weeks, inflation in the near term is expected to remain on higher side. SBP expect average inflation of 21-23% in FY23 whereas our inflation estimate is around 26% in FY23.
On external front, challenges continue to mount as FX reserves has dropped to US$4.3bn, down by US$3.1bn from Nov 25, 2022 (since last MPS), barely an import cover of 1-month. This is due to huge debt repayments & slowdown in foreign inflows. In its last monetary policy statement, SBP highlighted concern of slowing foreign flows due to domestic political uncertainty & tightening global situation amid rising global interest rates.
We think that policy rate will increase by 100bps in upcoming monetary policy however if inflation rate does not fall & external issues persist, further rate hikes can not be ruled out.
Responding to our question on PKR/USD parity outlook in the interbank market by Jun-23, most of the participants anticipate PKR/USD parity to range in Rs240-260 by June 2023. Around 13% expect it to be around Rs260-270 while 11% expect it to be above Rs270. On other hand, 11% expect it to be in the range of Rs230-240, while only 3% expect it to be at around Rs220-230.
Courtesy- Topline Securities