Pakistan Economy

September 08, 2023

REP-057

Monetary Policy Survey

Majority expect 200bps increase in policy rate

Sunny Kumar
sunny@topline.com.pk
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House 2015-16, FY2020 Brokers Poll 2011-14, 2016-22 House 2018,19-20,23 House 2019-20 House 2019-21 Topline Securities, Pakistan
54% of market participants expect 200bps increase in policy rate
What changes in Policy Rate do you expect in the upcoming MPC?  SBP’s next Monetary Policy Committee (MPC) meeting will be held on the 14th of Sep 2023.

60%
 In order to gauge the view on monetary policy outlook, Topline Research conducted a poll of
54%
key market participants on expectations over policy rate and key macro estimates.
50%
 According to the survey, 54% of participants expect interest rates to increase by 200bps,
40%
while 18% of participants expect an increase of up to 100bps in the policy rate. Additionally,
30% 12% expect interest rates to increase by 150bps, and 10% expect a 300bps increase. Rest
18% 7% expect no change while no one expect increase in policy rate by more than 300bps.
20%
12% 10%
10% 7%  In the post MPC meeting on July 31, 2023, SBP Governor stated that data driven policy
0% decisions will be made in future. In IMF Country Report, Staff also emphasized a continued
0%
tight, proactive, and data driven monetary policy is warranted going forward.
No Change Increase up Increase by Increase by Increase by Increase by
to 100bps 150bps 200bps 300bps more than  Since the last MPS, major developments have taken place and new data is now available
300bps
which will likely be considered by the central bank committee in upcoming MPS. These
Source: Topline Research Poll
includes; (1) Pakistan posted a Current Account Deficit of US$809mn in July 2023 after four
consecutive months of Current Account Surplus, (2) local fuel (petrol & diesel) prices have
Where do you see Policy Rate in June 2024?
increased by around 19%, (3) International oil prices in US$ have risen by 6%, and (4) rupee
35% has fallen by 6% against the US dollar.
31%
30%  Owing to the sharp spike in commodity prices, concerns over inflation, and the current
25% account outlook, the cut-off yields in the recent T-Bill auction have increased by 162-
25% 23%
213bps, with cut-off yields now standing at 24.5%, 24.8%, and 25.1% for 3, 6, and 12
20% 18%
months, respectively. Furthermore secondary market yields on T-Bill & PIBs have increased
15% by 134bps and 110bps respectively since July 31, 2023.

10%  In response to the second question where do you see Policy Rate in June 2024, 31% of the
3% participants anticipate policy rate to be in range of 22-24%. 25% of participants expects
5%
policy rate in between 20-22%, and 23% of participants expects policy rate to fall between
0% 24-26%. On the other hand, 18% participants expect policy rate to be below 20% and 3% of
Below 20% 20-22% 22-24% 24-26% Above 26%
participants expect policy rate above 26%.
Source: Topline Research Poll

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Inflation estimates revised upward
What is your latest estimate of Average CPI for FY24?  In response to the question regarding the expected average inflation for FY24, 34% of the
participants anticipate inflation to range between 22-24%. 21% of participants expects
40%
34% inflation to fall between 24-26%, and 18% of participants expects inflation to fall between
35%
20-22%. On the other hand 21% participants expect inflation to be above 26% and 5% of
30%
participants expect inflation below 20%.
25% 21% 21%
20% 18%  To recall, Pakistan’s CPI Inflation in Aug 2023 came down to 27.4% YoY vs. 28.3% YoY in Jul
2023 attributed to the high base effect from the last year along with lower food prices.
15%
10%  With recent increase in local fuel prices along with rupee devaluation against US dollar, we
5%
5% have revised our inflation estimate upward. We now expect the average inflation for FY24
0% to be 23%, compared to our earlier estimate of 21%.
Below 20% 20-22% 22-24% 24-26% Above 26%
 However, considering recent developments, we also believe that the SBP may revise their
Source: Topline Research Poll inflation targets upward from the previous range of 20-22% for FY24.

Where do you expect interbank dollar rate by June 2024?

 Considering all the factors mentioned above, we expect an increase of 200bps, taking the
rate to 24%, in the upcoming MPC meeting.
40% 38%

35%
 Responding to our question on PKR/USD parity outlook in the interbank market by Jun-
2024, 38% of the participants anticipate PKR/USD parity to range in Rs320-340 by June
30%
25% 2024. Around 25% expect it to be around Rs340-360 while 21% expect it to be around
25% 21%
Rs300-320. On other hand, 12% expect it to be below Rs300, while 5% expect it to be above
20%
Rs360.
15% 12%
 We also expect PKR/USD in interbank market to be in range of Rs320-340 by Jun-2024.
10%
5%
5%
0%
Below 300 300-320 320-340 340-360 Above 360

Source: Topline Research Poll

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