Analysts at KASB Research on Monday said that the inflation figure was initially estimated to be significantly higher than our current projections; however, the economic relief package reducing domestic fuel and electricity prices limited upside risks to inflation during the month.

The projected 0.7 per cent MoM uptick in the Consumer Price Index (CPI) is largely driven by higher food prices, particularly chicken (+25 per cent MoM) and edible oil (+10 per cent MoM).

Food prices are expected to surge ahead of the holy month of Ramazan and Eid, pushing the food index (weight: 34.6 per cent) on a higher trajectory.

“We can witness even higher prices of chicken, fruits and vegetables in the coming month,” they said.

However, edible oil prices may remain shielded because of the announced tax reduction for importing oil. Moreover, the impact of elevated fuel prices will likely to remain limited because of the aforementioned economic relief package.

Secondary market yields have risen sharply in anticipation of an interest rate hike by the central bank.

The speculation of additional monetary tightening is largely fuelled by inflationary pressures, external account imbalances and the consequent weakening of the rupee.

In FY22 to-date, the rupee has depreciated 16 per cent to its record-low level of 182.5 against the dollar. Moreover, the State Bank of Pakistan’s (SBP) foreign exchange reserves have dipped 25 per cent from their peak of $20 billion in August 21 to the current level of $15 billion.

As a result of these factors, the secondary market yields are up 120bps month-to-date. Moreover, the recent T-bills auction witnessed yields rise by 160bps and the PIBs auction saw a cutoff yield increase by around 100bps.