RECOMMENDATION ON INVESTMENT IN PIBs

Analysis: Information received since the start of FY20 indicated that Pakistan economy was ready to
witness another difficult year on the back of higher food and energy prices. The same was witnessed in
Jul-19, however Aug-19 inflation reading was subdued and clocked in at 10.5% YoY, down by 1%, as
compared to 11.6% YoY based on previous mechanism. Despite high inflation numbers likely to be
witnessed in 1HFY20, the rebasing will limit CPI reading and result into lower inflation during second half
of FY20.

Backed by lower inflation going forward, an inverted yield curve, Monetary Policy Committee’s (MPC)
relatively dovish tone, we believe interest rates have almost peaked out. Since the new Governor is
forward looking, the SBP must be reacting promptly in changing monetary stance and may signal by a
token 25 bps cut in next Monetary Policy due in late September.

Conclusion: While an interest rate cut might take time to come through, we believe not to wait for signs
of an end to the tightening cycle, and recommend to start parking funds in 3 Year PIBs around 13.55% or
above through upcoming auction. PIB investments also has liquid secondary market and provide exit and
capital gain opportunities when needed as well as compared to Defence Saving Certificates (DSS) which
has a lower yield of 13.01% and do not have secondary market.