Pakistan’s inflation likely to slow down further in November, signals room for another rate cut

The slowing inflationary trend in Pakistan is likely to continue as the CPI-based figure is expected to fall below 5% in November, marking a 78-month low, said brokerage house Topline Securities in a report on Tuesday.

“Pakistan’s Consumer Price Index (CPI) for November 2024 is expected to clock in at 4.5-5% YoY (+0.4% MoM), taking 5MFY25 average to 7.91% compared to 28.62% in 5MFY24,” 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 7.2% on a year-on-year basis in October 2024, slightly higher than the reading in September 2024 when it stood at 6.9%, revealed Pakistan Bureau of Statistics (PBS) data.

Meanwhile, Topline Securities observed that with inflation expectations of ~4.5-5.0% for November 2024, “real rates will surge to 1000-1050bps, significantly higher than Pakistan’s historic average of 200-300bps”.

This elevated real interest rates will provide room for a further policy rate cut, it noted.

The State Bank of Pakistan (SBP) in its last Monetary Policy Committee (MPC) meeting reduced the key interest rate by 250 basis points (bps), taking it from 17.5% to 15% after a fourth successive round of monetary easing that began in June 2024.

“We expect interest rate to clock in at 11-12% by December 2025, suggesting positive real rates of 200-300bps based on FY26E inflation average of 8.8%,” said Topline Securities.

The brokerage house projected inflation to clock in at 7-8% in FY25.

It shared that the 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%”.