By Staff Reporter
ISLAMABAD: S&P Global Market Intelligence expects the State Bank of Pakistan (SBP) to cut its policy rate by the end of June and projects a cumulative 450-basis-point reduction by the end of 2024, following a surprise drop in the monthly inflation rate.
“The recent softening in headline inflation increases the likelihood of the SBP lowering its policy rate in June 2024,” S&P said on Monday in a brief note. “Overall, S&P Global Market Intelligence projects a cumulative 450-basis-point reduction in the policy rate by the end of 2024.”
The inflation pace eased for the fifth straight month as domestic food supplies improved and fuel costs fell, at a time when the central bank has kept interest rates at a record high for nearly a year.
Consumer prices in May rose 11.76 percent from a year earlier, the lowest in almost two and a half years, according to data released by the Pakistan Bureau of Statistics. It exceeded a median estimate for a 13.7 percent gain in a market survey and compares with a 17.34 percent increase in April.
The slowing pace of price gains in Pakistan is partly due to the base effect of one of the fastest inflation gains in Asia last year. The central bank has kept interest rates at a record 22 percent since June last year to rein in prices and demand. It will review monetary policy on June 10 and has pledged to bring down interest rates to 5-7 percent by late next year.
The S&P noted that the realized headline CPI inflation was considerably lower than market expectations, mainly on the back of a notable deflation in food prices, led by perishables.
“Inflation is projected to continue its declining trend in the coming months, majorly owing to favorable base effects,” the S&P said. The inflation would remain in the double-digit range, with an average monthly year-over-year rate of 13.7 percent for 2024, it added.
“The SBP had maintained its policy rate at 22 percent in its April 29 meeting due to elevated inflation, heightened global financial market uncertainty, and the upcoming budget announcement in June, but the latest inflation numbers justify rate cuts from now on.”
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