Pakistan’s inflation likely to stay in single digit in October, rate cut anticipated

The slowing inflationary trend in Pakistan is likely to continue in October, but is expected to inch up marginally on a monthly basis, said Topline Securities in a report Friday.

“Pakistan’s Consumer Price Index (CPI) for Oct 2024 is expected to clock in at 6.5-7.0% YoY (+0.9% MoM), taking 4MF25 average to 8.6% compared to 28.5% in 4MFY24,” said the brokerage house.

Inflation in Pakistan has been a significant and persistent economic challenge, particularly in recent years. In May of last year, the CPI inflation rate hit a record high of 38%. However, it has been on a downward trajectory since then.

Pakistan’s headline inflation clocked in at 6.9% on a year-on-year basis in September 2024, lower than the reading in August 2024 when it stood at 9.6%, showed Pakistan Bureau of Statistics (PBS) data on Tuesday. The CPI reading was the lowest since January 2021, according to the PBS.

Meanwhile, the brokerage house said on Friday that due to inflation expectations of ~6.5-7.0% for October 2024, “real rates will surge to 1050-1100bps, significantly higher than Pakistan’s historic average of 200-300bps”.

The rising real rates also gives impetus to a further cut in the key policy rate.

In its last meeting, the MPC of the State Bank of Pakistan (SBP) unleashed its most aggressive cut in the key policy rate since April 2020, reducing it by 200bps to bring it down to 17.5% amid slowing inflation and declining international oil prices.

The central bank’s monetary policy meeting is scheduled on November 04, 2024, “wherein we expect fourth consecutive cut in interest rates to the tune of 200bps from current level of 17.5%, taking total cut to 650bps in last 4-5 months,” said Topline Securities.

“We expect policy rate to come down to 13-14% by Jun 2025.”

SBP in its recent monetary policy communication has noted that, FY25 average inflation will fall below the earlier forecast range of 11.5 – 13.5%.

“Any major deviation in commodity prices from current levels (i.e. oil US$75/barrel) may result in change in inflation estimates,” noted the brokerage house.