The inflation rate is expected to decrease in the coming months
According (UrduLight.com) to the latest report by Arif Habib Limited (AHL), inflation is forecast to moderate in the coming months to December 2023 to a monthly average of 0.99 percent and will float between 23-29 percent between June and December.
A pullback is likely due to higher base effects with real interest rates expected to turn positive in the second half of FY24 with a potential cut in the policy rate by 400-500 basis points. Last year’s floods, higher taxes, removal of subsidies, and devaluation of the exchange rate pushed headline inflation to 38 percent, but the report said further interest rate hikes would not help and fundamentals A holistic approach is needed to address.
The Monetary Policy Committee (MPC) is expected to meet on June 12 to determine the country’s future economic direction. The report recommends against further increase in policy rate citing the detrimental effects of fiscal stress with provisional GDP of 0.29 and negative industrial growth of 2.94 percent.
The report said that the economy has almost come to a standstill with rising cost of doing business due to rising interest rates and further fiscal tightening will add to the country’s current economic woes. AHL surveyed banks, AMCs, insurance, and DFIs, Non-Financial Services/Manufacturing: E&Ps, Cement, Fertilizers, Steel, Textiles, and Pharmaceuticals for feedback on the expected monetary decision next week.
According to the results, 22.7 percent of the total respondents expect the policy rate to increase by 100 points while 77.3 percent predict it to remain at 21.0 percent.
7.8 trillion mark-up on domestic debt to exceed Rs
Analyzing the financial situation, the report said that about 84 percent of the deposits in domestic banks have been given to the government, while the provision of domestic loans has increased by 69 percent to 3.6 trillion as of March 23, which is mainly due to the policy rate of 725 There is an increase in the base. The current one points to 21 percent.
The cost of markup on domestic debt is expected to exceed Rs. 7.8 trillion, an 85% estimate of the expected Rs. 9.2 trillion of FRB revenue in FY24. It also makes a case against further hikes in interest rates as it will only worsen the situation, hence the reports asking the authorities to tread carefully in these difficult times.
Investors in “wait and see” mode
Reports indicated that the primary yield market was broadly unchanged since the April 23 monetary policy cut-off for short-term instruments between 21-22 percent and yields for the three tenner Treasury bills. Historically higher. It also outlines the yield curve in markets with yields on long-term bonds falling below those on short-term bonds.
Investors are waiting for the monetary policy scenario to unfold and are not making any significant changes in investment portfolios along the yield curve suggesting that stakeholders are uncertain despite the expected policy rate cut. Expect economic conditions.