Experts anticipate rate cut after inflation slowdown

• Former Secretary Finance Waqar Masood anticipated that the inflation rate would continue its downward trajectory in the coming months as well, due to slowdown in the global economy.
• ''Looking at the decline in inflation we anticipate the SBP to cut the policy rate by around 25 to 50bps'', says an expert.

The much-anticipated slowdown in inflation the rate has fuelled experts’ hopes of policy rate cuts by the central bank in the coming weeks.

“It was an important achievement to reduce the inflation rate, and such a significant drop in a month is very good but we shouldn’t put our guard down because a similar fall in inflation rate was witnessed in December as well,” said former Secretary of Finance, Waqar Masood Khan while talking to local media.

The Pakistan Bureau of Statistics (PBS) on Monday announced that month-on-month (MoM) basis, the CPI (Consumer Price Index) during February 2020 witnessed a reduction of 1.04 percent, while on annual basis, the CPI jumped up from 111.12 points to 131.64 points, which reflects an increase of 12.4 percent.

The former civil servant anticipated that the inflation rate would continue its downward trajectory in the coming months as well, due to slowdown in the global economy. Masood added that he expects the State Bank of Pakistan (SBP) to reduce its policy rate in its upcoming Monetary Policy.  

Similar sentiments were shared by Samiullah Tariq, Director Research at Arif Habib Group, he said that that they anticipate CPI to be around 10 percent in March, i.e. a decline of 2.4pc. “Secondly, the decline in oil rates will give another space of 5-6pc reduction, thirdly the drop in prices of perishable items will be added into the data, which will bring the inflation down to around 10pc in March,” he said.

Tariq was of the view that the central bank is monitoring the situation, and looking at the decline in inflation we anticipate the SBP to cut the policy rate by around 25 to 50bps.

The State Bank has kept the policy rate unchanged at 13.25 percent since January, Governor SBP Reza Baqir, on Monday said the Monetary Policy Committee (MPC) of SBP keeps the interest rate high on higher inflation outlook as any surge in inflation will have pressure on exchange rate.