SBP starts monetary easing on receding inflationary pressures

Overview of the policy rate cut

In a significant move, the State Bank of Pakistan (SBP) has started the monetary easing cycle with its first rate cut in almost four years. The Monetary Policy Committee (MPC) decided to cut the interest rate by 150 basis points (bps), bringing the rate down to 20.5%.

Reasons behind the rate cut

The MPC’s decision is based on several factors:

• Significant reduction in inflationary pressures
• Fiscal consolidation
• Stable PKR parity from an improved current account position
• Gradual recovery in the industrial sector

Expectations for future rate cuts

The SBP is expected to remain cautious in opting for aggressive monetary easing. However, a further monetary easing of 200 bps is anticipated by the end of the year. This cautious approach is due to probable near-term inflationary pressures related to the upcoming budget and energy price adjustments.

Impact on the economy and investor confidence

The commencement of monetary easing is expected to have a positive impact across the board, boosting investor confidence. This move is likely to be particularly beneficial for several sectors, including:

Sector	Top Companies
Exploration & Production	OGDC, PPL, MARI
Banks	MCB, UBL
Fertilizers	FFC
Power	HUBC
Cement	LUCK, MLCF, FCCL
Automobiles	INDU
Steel	MUGHAL
Textile	ILP

Fiscal consolidation to keep demand in check

The SBP’s decision to start monetary easing is considered appropriate given the expectation of continued fiscal consolidation. Revenue-generating measures in the upcoming budget and limited room to increase expenditures are expected to keep demand in check. Additionally, the stability of the exchange rate is supported by the shifting of external debt maturities from commercial to bilateral/multilateral creditors and improving external inflows through remittances and the Roshan Digital Account.

Financial Impact of the Rate Cut

The table below shows the financial impact of the 150bps cut in the policy rate on various companies:

Sector	Company	Long Term Debt	Current Portion of LT Debt	Short Term Debt	Short Term Inv & Cash	Net Conv. Borrowing	Additional Interest Saving	After Tax Impact	Outstanding Shares	Per Sh Impact	Equity	Assets	D/E	D/A	% Impact on CY/FY25 EPS
FERTILIZERS	FFC	17,703	6,794	717	98,858	74,161	(1,112)	(679)	1,272	(0.53)	157,891	331,789	16%	8%	-1.5%
	FATIMA	6,281	2,138	1,482	20,261	10,360	(155)	(95)	2,100	(0.05)	127,779	240,305	8%	4%	-0.3%
OIL & GAS	OGDC**	–	–	–	68,547	68,547	(1,028)	(627)	4,301	(0.15)	1,223,829	1,556,447	0%	0%	-0.3%
	PPL**	–	–	–	55,055	55,055	(826)	(504)	2,721	(0.19)	624,978	883,579	0%	0%	-0.4%
	POL**	–	–	–	44,370	44,370	(666)	(406)	284	(1.43)	73,499	172,816	0%	0%	-1.4%
	MARI	613	150	–	61,354	60,591	(909)	(554)	133	(4.16)	199,229	321,635	0%	0%	-0.7%
	PSO	–	–	408,233	22,551	(18,272)	274	167	469	0.36	225,981	1,026,627	181%	40%	0.7%
	APL	–	–	–	32,172	32,172	(483)	(294)	124	(2.37)	52,896	107,984	0%	0%	-3.5%
TECHNOLOGY	SYS	–	–	1,419	7,998	6,579	(99)	(60)	291	(0.21)	33,988	50,907	4%	3%	-0.4%
GLASS & CERAMICS	TGL*	1,171	1,081	2,422	176	(4,498)	67	41	172	0.24	17,642	26,659	26%	18%	0.9%
	GHGL*	38	28	–	1,494	1,428	(21)	(13)	1,000	(0.01)	32,162	49,216	0%	0%	-0.2%
PHARMA	SEARL*	4,189	8	9,275	226	(13,246)	199	121	511	0.24	31,989	53,130	42%	25%	44.4%
	FEROZ*	111	47	2,833	591	(2,400)	36	22	43	0.51	6,555	12,001	46%	25%	6.1%
	AGP*	2,097	434	1,699	143	(4,087)	61	37	280	0.13	10,566	17,484	40%	24%	2.4%
	CPHL*	2	27	1,185	1,597	383	–	–	–	–	–	–	–	–	–

Investment perspective

From a market perspective, the start of monetary easing is expected to be positive across various sectors, helping to build investor confidence. Cyclical sectors such as Cement, Steel, and Automobiles are likely to come into the spotlight. However, concerns remain on the demand side due to contractionary fiscal policy and a slower recovery of the industrial sector. Sectors benefiting from circular debt resolution and energy tariff rationalization are also expected to perform well.

Disclaimer:

The information in this article is based on research by AKD Securities Limited. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.