Author Topic: Interest Rate Forecast  (Read 329155 times)

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Offline Farzooq

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Re: Interest Rate Forecast
« Reply #1639 on: September 12, 2019, 10:32:01 AM »
*PAKISTAN MONETARY POLICY TO BE ANNOUNCED ON SEPT. 16

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Re: Interest Rate Forecast
« Reply #1639 on: September 12, 2019, 10:32:01 AM »

Offline ajeebkhan

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Re: Interest Rate Forecast
« Reply #1640 on: September 12, 2019, 11:28:43 AM »
*PAKISTAN MONETARY POLICY TO BE ANNOUNCED ON SEPT. 16
Market expections are 25 bps cut..

Offline Farzooq

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Re: Interest Rate Forecast
« Reply #1641 on: September 13, 2019, 12:07:16 PM »
Monetary Policy Statement: Reduction of 25bps Expected

Easing Cycle to Initiate

SBP is scheduled to announce its monetary policy on September 16, 2019. We expect the central bank to lower its policy rate by 25bps to 13.00%. Primary reason for this decline in policy rate, in our view, is the decline in FY20 expected inflation from 10.7% to 9.6% due to rebasing of CPI from 2007-08 to 2015-16. To recall, previous rate hike of 100bps in Jul’19 was on account of higher inflationary forecast and one time adjustment in utility prices. Despite adjustment in utility prices, change in weights of gas and electricity in CPI methodology resulted in lower inflation of previous and current year.

After rebasing, average inflation for 1QFY20 is expected to settle at 9.92%, while a policy rate of 13.25% would result into a real interest rate of 333bps. Data for the past 48 months exhibits that average real interest rates have remained approx. 2.1%. Therefore, we believe rate cut of 25bps in upcoming monetary policy would still keep real interest rates at 3.08%.

Money Market Incorporated Decline in Interest Rates

§  The yield curve has shifted downwards towards the longer end of the curve, whereby the yields for 10-yr PIB have declined by 136bps since Jul’19.

§  The T-bill auction held on Wednesday (September 11th, 2019) was also extraordinary as 87% of the total participation was made in one year T-bills, showing that market participants wanted to lock-in their rates for one year as they foresee a decline in interest rates during the period. The result of the auction exhibited that the cutoff for 1-yr T-bill was lower by 32bps, while the remaining didn’t change much. In the secondary market trading, the yield for 1-yr T-bill has declined to 13.52%, which is a further decline of 41bps since the cutoff. One plausible explanation for this move is that the government only realized 24% of bids for the 12 month paper, which meant the remaining bidders came to secondary market to purchase the paper.

§  Decline in cutoff for T-bills as well as movement in secondary market for T-bills and PIBs are pointing towards a cut in discount rate in the upcoming monetary policy

25bps Cut in Policy Rate is Expected

On the external front, Current Account Deficit witnessed a substantial decline of 73% YoY to USD 579 million in Jul’19. Meanwhile, CAD has reduced down to a sustainable level of around 2.5% of GDP due to a massive decline in imports as the incumbent government continues to undertake several corrective measures. On the other hand, exchange rate is now stabilizing between PKR156/USD to PKR158/USD.

We believe domestic demand has already been compressed as witnessed in the declining statistics of imports (-22% for 2MFY20) and sales of consumer durables (Autos -42% YoY, Electrical Appliances etc). We expect the SBP to reduce the policy rate by 25bps citing lower than expected inflation and reduction in interest rates globally. We also expect a further 100 bps rate cut during FY20 which is expected in Mar’20 and May’20 by 50bps each.
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Offline Farzooq

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Re: Interest Rate Forecast
« Reply #1642 on: September 13, 2019, 12:10:11 PM »
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Offline salmankaramat

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Re: Interest Rate Forecast
« Reply #1643 on: September 13, 2019, 01:14:00 PM »
Status quo, no change in discount rate expected.

Offline Investonly

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Re: Interest Rate Forecast
« Reply #1644 on: September 13, 2019, 05:12:15 PM »
Should not expect cut this time.

Should be in November