Pakistan economy to brace for a 100bps rate hike

·         To gauge market expectations, AKD held a poll, wherein most participants, ~57% of responses, expect the MPC to increase interest rates in the country by 75-100bps. Another 15% expect the interest rates to be hiked by a more conservative 50bps.

·         Headline inflation has averaged ~25.05% in 1HFY23, with rural trimmed inflation averaging 24.7% during the same period. With the IMF calling for a market-based exchange rate, inflationary pressures are expected to continue for the remainder of FY23.

·         71% of our respondents expect the exchange rate to drop to between PkR255-265/US$ by the end of the fiscal year. 37% of our respondents expect the weakness to continue towards PkR280/US$ by the end of CY23.

·         From the vantage of capital markets, the market has likely already priced in a 100bps hike. Furthermore, an interest rate hike may be perceived as a preamble for the resumption of the IMF programme.

Courtesy –  AKD Research

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