Morning Call About Monetary Policy Statement Economy - Arif Habib Limited

Karachi -- 150bps cut in policy rate raises valuations by 7% According to Arif Habib Limited, The Stat Bank of Pakistan (SBP) decision to cut the policy rate by 150bps, to 12% (real rate +0.53% adjusted for 3MFY12 YoY headline inflation) on 8th oct'11, does not seems like a one off an event, instead signalling a further rate cuts down the road. Hence Arif Habib Limited is revising its discount rate outlook for FY12 to 11.0% from 12.5% previously, with a further 100bps room for easing possible. Indeed Arif Habib Limited thinks the SBP decision to further continue rate easing will primarily be dependent on inflation trending downwards along with banking sector willingness to lend private sector. The SBP decision to slash the policy rate appears to be motivated by following two factors in mind: