Islamabad, Oct 18: SBP to Cut Interest Rate by 200 Basis Points in November Amid Declining Inflation
The SBP to Cut Interest Rate for October 2024 of Pakistan’s Consumer Price Index (CPI) is 6.5–7.0 percent YoY (+0.9 percent MoM), which would raise the 4MF25 average to 8.6 percent from 28. percent in 4MFY24.
According to research by Topline Securities, food inflation is predicted to grow by 0.7 percent MoM in October 2024, primarily due to rising wheat and chicken costs.
Interest rate outlook: On November 4, 2024, the Central Bank will hold its monetary policy meeting. According to the report, interest rates will be lowered by 200 basis points, or 0.5 percent, at this meeting. This will bring the total number of rate cuts to 650 basis points during the previous four to five months. According to the research, by June 2025, the policy rate is expected to drop to 13–14 percent.
Real Rate: With inflation expectations of ~6.5-7.0 percent for October 2024, real rates will surge to 1050-1100bps, significantly higher than Pakistan’s historic average of 200-300bps.
The housing, water, electricity, and gas segment is expected to witness approximately 3 percent MoM growth due to an expected increase in rent (+2-2.5 percent MoM) and tariff increase from Rs. 7.7/kWh to Rs. 11.69/kWh for protected consumers after the end of the 3 months subsidy by Prime Minister on power consumption.
The transport segment is expected to witness a decline of 2.3 percent MoM on the back of a decline in petrol and diesel prices.
Inflation outlook: The report revised down its average inflation forecast for FY25 to 7-8 percent on the back of faster-than-expected disinflation in the food segment in earlier months (though wheat prices are increasing lately) and negative fuel cost adjustments in earlier months.
IMF in its recent report has revised down its inflation forecast (average) for FY25 to 9.5 percent from earlier 12.7 percent reported earlier. While the central bank in its recent monetary policy communication has noted that, FY25 average inflation will fall below the earlier forecast range of 11.5 – 13.5 percent.
Key Risks: Any major deviation in commodity prices from current levels (i.e. oil US$75/barrel) may result in a change in inflation estimates.
