Approval of the International Monetary Fund (IMF) agreement reached with the Pakistani authorities would bring in much-needed clarity to the market, said Mohammed Sohail, Chief Executive Officer (CEO) Topline Securities.

Last month, Pakistani authorities and the IMF reached a staff-level agreement on policies and reforms needed to complete the sixth review under the $6-billion Extended Fund Facility (EFF) that started in 2019.

Programme revival: Pakistan, IMF reach staff-level agreement on sixth review

However, the agreement is subject to approval by the Executive Board of IMF, following the implementation of prior actions, notably on fiscal and institutional reforms.

The approval, which had earlier been considered a formality, has taken time, much to the disappointment of Pakistan that has seen its currency hit an all-time low, while its key stock market index has also seen a decline.

Turbulence has also hit Pakistan's financial markets amid a widening current account deficit, high import bill, and rising inflation that has prompted the country's central bank to aggressively raise the interest rate.

“In the past three years, interest rates have jumped from 6% to 13% and then from 13% to 7%, this leads to uncertainty. Furthermore, there is still lack of clarity over the IMF programme, while inflation rate continues to rise,” said Sohail, while talking to a private channel.

He said that investors and market players are unaware of the technical targets assigned to the government in the IMF programme, which has added to the uncertainty.

“However, the latest measure taken by the central bank is quite decisive and a right action,” said Sohail.

In an interesting move, the SBP on Friday conducted a 7- and 63-day OMO (Open Market Operation). The amount offered was Rs1,086 billion in 7-days and Rs753 billion in 63-days. The SBP picked Rs1,086 billion at 9.82% in 7-days and Rs689 billion at 9.90% in 63-days.

OMOs are a regular measure of the SBP, however, a 63-day OMO was seen for the first time in recent years. “We believe this is to give market a signal of stability,” said Sohail.

To recall, the SBP in its recent Monetary Policy Statement (MPS) said that across all tenors, secondary market yields, benchmark rates and cut-off rates in the government’s auctions have risen significantly.

SBP to take a 'pause' after string of interest-rate hikes, says Dr Reza Baqir

The MPC noted that this increase appeared unwarranted. In spite of that, yields in the last T-Bill auction remained the same while in secondary markets it went up by 20-30bps after the auction.

However, after SBP's latest move, yields in money markets have come down by 34-40bps to 10.27% and 11.07%, for 3M and 6M papers, respectively. PIBs also have rallied with yield falling by 10-13bps on 3 and 5-year bonds, to 11.53% and 11.58%, respectively.

“However, despite the measures, if oil prices rise by $8-10, adding to Pakistan's already high import bill, and inflation spikes, this would add to uncertainty,” said the Topline CEO.