The odds of rate cut

Ever since the election, the market has been anticipating a rate cut - their anticipation quite evident by the dip in cut-off yields in the recently held T-bill and PIB auctions. From what it appears, the market is largely banking on a possible slowdown in inflation as the PML-N has hinted at staying away from the IMF in its initial days.
That, plus the recent news of Saudi Arabia, possibly making an allowance for deferred payments on oil imports, has further strengthened the view that discount rates may ease further. These are strong enough reasons and the market, one expects, is smart enough to anticipate what is coming.
But there is a flipside too. The caretaker government is mulling over increasing the GST by one percentage point to 17 percent. Though it is not confirmed yet, but if it happens, it would definitely have an impact on inflation.
Then there are other indicators that point towards a spike in inflation than what is being generally perceived. The PML-N has time and again hinted at rationalising natural gas tariffs for all consumer categories from domestic to industries. There are proposals making rounds to equate CNG price with that of petrol, which would surely swell the CPI number.
Besides, the electricity tariffs too are expected to increase further, as those at the helm of energy affairs, have indicated at rationalising tariffs by eliminating subsidies. Surely, it would free the government of additional borrowing to finance power subsidies, which may balance the impact of higher tariffs on inflation.
The electricity component of CPI may not show the direct impact of a possible increase in power tariffs, as, for some absurd logic, it only covers the lifeline consumers. But the trickledown effect will definitely be seen as the impact would be passed on to the end consumer.
What also remains to be seen is how the PML-N deals with the inter-corporate circular debt stock that will need at least Rs200-250 billion to be cleared. The PM in-waiting Nawaz Sharif has hinted at clearing the circular debt stock at the earliest one and for all, which if financed from central bank borrowing may result in inflation.
Although the PML-N has clearly mentioned in its manifesto that it would deal with inflation by lowering the interest rates, which might be playing in the mind of the market, factors on the other side of the spectrum are too obvious to ignore. If the government in waiting sticks to its promises, a rate cut seems less likely. Has the market anticipated too soon? That will be found out shortly.