Market anticipates another major hike in policy rate

With the State Bank of Pakistan's (SBP) latest Monetary Policy Committee (MPC) meeting just around the corner, market participants are expecting yet another significant jump in the policy rate of 100 bps or above, revealed Ismail Iqbal Securities in its latest survey.

As per the said survey, there is a clear shift in expectations, with money managers having a more hawkish stance this time as compared to earlier MPC announced in November.

“About 70% of the market participants expect interest rate hike of 100bps or above in the upcoming monetary policy meeting as compared to 40% in Nov-21 meeting survey,” said the report.

The central bank's MPC is scheduled to meet on December 14 and comes only 24 days after the previous meeting.

Monetary policy: SBP raises key interest rate by 150 basis points, takes it to 8.75%

Last month, SBP hiked the interest rate by 150 basis points, taking it to 8.75% as it announced the monetary policy. While the market expected a rate-hike, several analysts believed the push by the central bank would now be more aggressive as it looks to curtail a burgeoning current account deficit and rupee depreciation.

“Since the last meeting, the yield curve has shifted upwards, with 3M to 5Y tenor yields rising between 139bps to 220bps. While 6M KIBOR has also increased by 239bps to 11.55%,” said the report.

SBP prepones monetary policy announcement, will now hold it on November 19

The survey was conducted to assess how key market participants including those representing banking and corporate sector, view monetary settings in the near term. Around 63% of the market participants expect policy rate to reach 10-11% by June-22 as compared to only 11% in previous survey, while about 80% expect it to remain 10% or below.

Meanwhile, about 50% of the market participants expect inflation to average between 10-11% during FY22 as compared to 34% in previous survey.

“About 30% expect inflation to average between 11-12% against only 10% in previous survey. This implies that market is expecting inflation at 11-13% for remaining 7 months,” stated the survey.

Furthermore, a majority of participants are anticipating further hike in dollar rates against the Pakistan rupee. “Around 60% of the market participants expect exchange rate to remain between 180-185 by Jun-22 as compared to 30% in previous survey,” the report added.