Monetary Policy: Indicators still Favoring Wait and See

SBP will opt for a wait and watch approach and hence discount rate will remain at 12% in upcoming MPS    Inflation averaging at 11% during 11MFY12, fall in fuel price and money supply growing at 10% will allow SBP not to change its view on monetary policy    The risk of double digit inflation in FY13 stems from reliance on domestic banking system, expansionary budget ahead of election year and expected breach of subsidy targets    As per our estimates inflation during FY13 will remain in between 11.3% to 12.3%    With USD2.6bn to be repaid to IMF against SBA program during FY13, balance of payment situation would remain under check. The resultant depletion of reserves would weaken PKR and offset the benefits of decline in fuel oil prices    Given uncertainty over foreign flows, government would be bound to rely on domestic sources for funding its fiscal operations. Amid consequent inflationary outcome of the same, change in monetary stance during 1HFY13 cannot be ruled out

Monetary Policy: Indicators still Favoring Wait and See