Ep. 35 | Understanding Why State Bank Shall Cut the Rates Now with Mustafa O. Pasha

The conversation revolves around the expectation of a rate cut by the State Bank of Pakistan and the potential impact on the economy. The guest, Mustafa Pasha, provides insights into the State Bank's rationale for keeping the rates unchanged, including high inflation, geopolitical uncertainties, and potential taxation measures. Overall, the conversation highlights the importance of understanding the country's economic context and the potential consequences of monetary policy decisions. The conversation discusses the possibility of interest rate cuts by the State Bank of Pakistan and the potential impact on the economy and stock market. It explores the historical data of previous IMF programs and their effects on the stock market. The conversation also delves into the factors influencing the exchange rate and the importance of dollar flow in determining monetary policy. The need for rate cuts to stimulate industries and boost economic growth is emphasized. The conversation concludes with a discussion on the investing strategy for the stock market, highlighting the macroeconomic stability, attractive valuations, and available liquidity as positive factors.

Takeaways
1. The State Bank of Pakistan has decided to keep interest rates unchanged due to high inflation, geopolitical uncertainties, and potential taxation measures.
2. There is a debate about whether a rate cut would lead to an overheating economy or if the current high rates are self-defeating.
3. The impact of international capital flows on Pakistan's currency is limited, and the country's economic context should be considered when making monetary policy decisions.
4. It is important to quantify the potential measures of the IMF and assess their impact on the economy.
5. Understanding the country's economic context and the potential consequences of monetary policy decisions is crucial. Interest rate cuts by the State Bank of Pakistan can stimulate industries and boost economic growth.
6. Historical data shows positive stock market returns in the first year of IMF programs.
7. Dollar flow plays a significant role in determining monetary policy in Pakistan.
8. Macro-level stability, attractive valuations, and available liquidity make the stock market favorable for investment.
9. Cyclical sectors like cement, steel, autos, and auto parts can be promising for investment.

Chapters
00:01 Sneak Peak
02:10 Mustafa Pasha and his advice for the aspirant's Research Careers?
12:00 What was SBP's rationale for not cutting the interest rates?
16:22 Why would the SBP cut the rates before the US Fed?
20:18 How can SBP cut the rates when the IMF, new taxes, will increase inflation again?
26:18 Will cutting the rates not overheat our economy?
30:22 Won’t the PKR collapse again if SBP cuts the rates now?
35:37 How will the PKR behave going forward, and what is the year-end projection?
41:44 Summarizing the rationale again for why SBP shall cut the rates now?
51:39 When would the funds shift their exposure from low to high risk?
54:17 What would be the best investing strategy for the stock market enthusiast now?
1:02:39 What sectors and stocks of PSX could perform better going forward?