Spectrum research expects unchanged interest rate

The State Bank of Pakistan (SBP) MAY DECIDE to maintain the Policy Rate at 22%, according to Spectrum Research. The main concerns relate to the potential depreciation of the PKR against the US Dollar as per the research house. Here are some important points from their report.

Exchange Rate and Forex Reserves Dynamics

Recent data shows that the Real Effective Exchange Rate (REER) of the PKR has experienced a slight weakening trend. In March 2024, the REER stood at 104.10, up from 98.83 in December 2023, indicating some vulnerability in the PKR. This trend suggests that the SBP is likely to focus on curbing domestic demand to safeguard forex reserves, particularly until approval is secured from the International Monetary Fund (IMF).

Export Challenges and IMF Directives

Efforts to stabilize the current account balance have been hindered by sluggish export performance. Although remittances have helped offset trade deficits to some extent, challenges persist. IMF directives are aimed at curbing inflation, maintaining forex reserves, and stabilizing the PKR. These measures are expected to keep GDP growth modest at around 2.0% for FY24 and 3.5% for FY25.

Future Outlook and Monetary Policy

Despite the current challenges, there are positive indicators for the future. Strong foreign inflows following an IMF agreement, coupled with existing foreign direct investment (FDI) agreements, are expected to support the stability of the PKR against the USD. Moreover, with the government bearing high borrowing costs, a potential easing of the policy rate could help reduce borrowing costs, further aligning with a possible easing stance by the SBP in the third quarter of FY24.

About Spectrum Securities Limited (SSL)

Spectrum Securities Limited, acquired from M/S Mazhar Hussain Securities Limited, is a TREC Holder of Pakistan Stock Exchange Limited. With a history dating back to its establishment in December 2000, SSL underwent a management change in October 2014, bringing in a new team of professionals with a focus on attracting corporate clients.

Disclaimer:

The information in this article is based on research by Spectrum 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.