The State Bank of Pakistan (SBP) is likely to reduce policy rate by 400 basis points this year, as a notable drop in the country’s inflation gives room for continued monetary easing to support economic growth.
According to Topline Securities, inflation in Pakistan is expected to remain low in October but may rise a little on a monthly basis.
The Consumer Price Index (CPI) for this month is estimated to stay between 6.5 per cent and 7.0 per cent year-on-year, with a 0.9 per cent rise month-on-month. This can bring the average inflation rate for first four months of FY25 to 8.6 per cent compared to 28.5 per cent during the same period in 2023.
What experts are calling “the faster-than-expected ease in inflation” is largely because of the delays in raising administered electricity prices, somewhat favourable global oil and food prices, and a stable Pakistani rupee.
Recent estimates suggest headline inflation will drop from 23.4 per cent in FY24 to around 9 per cent in FY25. In response to this trend, the SBP has already cut its policy rate by 450 basis points, lowering it to 17.5 per cent in September from 22 per cent in May 2024.
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To note, inflation in the previous month crashed to its lowest level in nearly four years, with consumer prices rising by 6.9 per cent year-on-year, within the central bank’s target range of 5-7 per cent. However, economic growth remains modest.
The Gross Domestic Product (GDP) rose 2.5 per cent in FY24, after a contraction the previous year, but this is still below the long-term average growth rate.
