The outgoing week witnessed a bearish tread in the local bourse primarily subject to the announcement on Wednesday of the Consumer Price Index (CPI) for May, declaring consumer prices growth by 13.8% MoM. This drove market sentiment downwards. As per the IMF’s conditions, the government has committed itself to removing subsidies on fuel prices. Amidst the economic turmoil, food prices have witnessed a 17.3% increase while the government has increased fuel prices twices in the past 10 days..
Apart from this, we witnessed a 55-75 BPS increase in yields from the T-bills auction held on Wednesday. This took yields to as high as 15.5% for 12 month securities. This can be used to build expectations regarding the next Monetary Policy Statement by the Statebank where a 50 to 100 basis point increase is anticipated.
To further add to the fire, we witnessed a downgrade of Pakistan’s credit outlook by Moody’s Investor Services from ‘stable’ to ‘negative’ in its latest credit assessment on Thursday, June 02,2022. After Moody’s credit rating review on June 20, 2018, this was the first time that Pakistan was subject to such a drastic demotion in its outlook. While the credit rating remained at ‘B3,’ which itself is a junk rating, the downgrade in outlook was primarily pertaining to the new regime’s inability to revive the International Monetary Fund’s bailout package and the nation’s weak institutional capacity. In a statement, Moody’s clarified that the decline in risk outlook was essentially subject to Pakistan’s “is driven by Pakistan’s heightened external vulnerability risk and uncertainty around the sovereign’s ability to secure additional external financing to meet its needs”. Market experts anticipate that this alteration is likely to cause an impact on the banking sector in the upcoming week.