Money managers in Pakistan are expecting an increase of 100 basis points or above in the policy rate during December 2021, according to a survey published by Ismail Iqbal Securities Limited (IISL).
IISL’s survey assesses how money managers view monetary settings in the near term. The participants of the survey included officials from commercial banks, asset management, insurance, private equity, corporate sector, and DFIs.
According to the survey, 70 percent of the participants believe that the policy rate will be increased by 100bps or more. 27% expect an increase of 75bps whereas 3% of the participants expect an increase of 50%. None of the participants expect the policy rate to remain unchanged.
The participants were also asked about the policy rate by June 2022. 63% of participants expect the policy rate to be between 10-11 percent by June 2022, 20 percent of the participants expect it to be between 9-10 percent whereas 17 percent believe that the policy rate will be between 11-12 percent.
During the previous month, only 17 percent of participants said that they expect the policy rate to be between 10-11 percent by June 2022, 40 percent said that they expect it to be between 9-10 percent whereas 43 percent said they anticipate it to be between 8-9 percent
The survey also asked the participants about the average inflation for the fiscal year 2022 (FY22). 50 percent of the participants said that inflation will remain between 10-11 percent, 30 percent said they expect it to remain between 11-12 percent, 13 percent expect it to be between 9-10 percent. While 7 percent of participants believe that inflation could go above 12 percent during the current fiscal year.
During the previous month, 45 percent of participants said they expect average inflation to be between 9-10 percent during the FY22. 34 percent of participants said they expect it to be between 10-11 percent, 10 percent expected it to be between 11-12 percent, 7 percent said they expect it to be between 8-9 percent. Only 3 percent of participants had said last month that they expect average inflation to be above 12% for FY22.
Inflation has averaged 9.3% in 5MFY22, however, the recent reading for Nov-21 came at 11.5%
When asked about Pakistani Rupee (PKR)/US Dollar (USD) parity, as many as 60 percent of the participants said that they believe the Pakistani Rupee will continue its slide against the US Dollar and expect it to be between 180-185 against the greenback. 23 percent expect it to remain between 175-180, 7 percent expect it to be between 170-175. However, 10 percent of participants expect it to be over 185 by June 2022.
During the previous month, 43 percent of participants expected PKR/USD between 175-180 by June 2022, 30 percent above 180, 20 percent between 170-175 and 7 percent had said that they expect it to be between 165-170.
Due to delays in International Monetary Fund (IMF) program, and the rising current account deficit, PKR has lost 11% value against the greenback since June 2021, while the volatility has raised concerns among investors.
During the previous month, only 40 percent of the participants had expected an increase of 100bps or more, 37 percent expected an increase of 75bps while 23 percent expected an increase of just 50bps. However, the Monetary Policy Committee (MPC) had increased the rate by 150bps, shocking all the stakeholders.
Since the previous meeting, the yield curve has shifted upwards, making the 3M to 5Y yields rise between 139 to 220bps, whereas the 6M KIBOR has also increased by 239bps to 11.5%.
The survey shows that the expectations of the money managers have drastically changed after the Monetary Policy Committee’s (MPC) decision of increasing the policy rate by 150bps during the previous month. The central bank is scheduled to announce its monetary policy statement (MPS) on Dec 14, 2021.
