Further rupee depreciation, hike in key policy rate expected in 2022

KARACHI: Fund managers and corporates believe the rupee may depreciate further to make a new low and significant rise in the key policy rate is expected by the end of 2022.

This was disclosed in a poll of fund managers and corporates conducted by the Topline Securities.

Most of the fund managers and corporates expect the GDP growth of 4 per cent to 5 per cent in FY22; policy rate to go up to 10 per cent to 10.5 per cent by December 2022: the rupee/dollar parity would reach 180 to 185 by December 2022, inflation to average 10 per cent to 10.5 per cent in 2021/22; and the KSE-100 Index to touch 45,000 50,000 points by December 2022.

Read more: Rupee recovers 24 paisas against dollar

The State Bank of Pakistan (SBP) on November 19, 2021 enhanced the key policy rate by 150 basis points to 8.75 per cent. Meanwhile, the rupee hit the all-time low of Rs176.20 on November 29, 2021.

The analysts at Topline Securities said economic stabilisation measures are likely to continue in 2022 in line with the International Monetary Fund (IMF) conditions.

Pakistan will continue to see interest rate adjustments, energy tariff rationalisation, withdrawal of tax exemptions and a few other tightening fiscal and monetary measures.

They believe despite low valuations, the market rerating will be limited in 2022 due to continuation of the tough IMF reforms that will result in rising yield on fixed income instruments.

“Our index target of 53,000 for December 2022 translates into a return of 18 per cent from the current levels, which will be in line with the last 20-year annual return CAGR of 18 per cent of the KSE-100 index.”

Four key factors that will impact the Pakistan market in 2022 included economic stabilisation measures; international commodities price trend; local and regional politics; and foreign buying and selling trend.

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On the positive side, early elections, sharp commodity price decline, improvement in relations with the US and foreigners buying in 2022 could provide further upside from the base case.

On the contrary, worst case for the market that could lead to lower-than-expected index level will include suspension of the IMF programme, increase in political noise and deterioration in the law and order situation due to the Afghanistan situation.