Below is Report from one house.
Pakistan Strategy: SBP - Bringing knife to a gun fight
• Out of sync with global central banks vis-à-vis aggressive quantitative steps, the State Bank of Pakistan (SBP) has reduced the policy rate by a modest 75bps, eying inflation more than domestic activity (or the lack of it).
• At the same time, adjustment in the interest rate corridor renders the 75bps cut to just 25bps on the savings rate provided by Banks – a clear negative for the earnings of the heavyweight sector.
• Announcement of the Temporary Economic Refinance Facility (TERF) entailing subsidized capex facility is baffling at a time of economic slowdown, indicating cluelessness of the SBP. A better alternative would have been a subsidized working capital facility for stressed industries.
• Current move by the SBP indicates likely cautious easing moving ahead where inflation numbers (despite being down) potentially in the wake of pressures particularly on the Food side may make a larger cut indigestible. This in our view would be counterintuitive and contrary to steps undertaken in major economies in the wake of a global slowdown.
• From market’s perspective, the PSX is likely to tread the same path as international markets given the seriousness of the COVID-19 endemic has just started setting in domestically. Recent developments including the spike in cases within Pakistan as well as partial shutdown of major cities currently underway bode unwell for the broader economy and resultantly the PSX. Investors are recommended to stay on the sides.
