Pakistan likely to see further rate cuts amid falling inflation

ISLAMABAD: Inflation in Pakistan is expected to continue its downward trend in October 2024, though it may rise slightly compared to the previous month, according to a report by Topline Securities released on Friday.

The report projects that Pakistan’s Consumer Price Index (CPI) for October may range between 6.5 per cent and 7.0 per cent year-on-year, with a 0.9 per cent increase on a monthly basis.

This would bring the average inflation for the first four months of fiscal year 2025 to 8.6 per cent, a sharp drop from the 28.5 per cent recorded during the same period last year.

Inflation has been a persistent challenge for Pakistan’s economy, peaking at a record 38 per cent in May 2023. However, inflation has steadily declined since then. In September 2024, the inflation rate fell to 6.9 per cent, down from 9.6 per cent in August, marking the lowest level since January 2021, according to data from the Pakistan Bureau of Statistics.

Topline Securities also forecasts that the policy rate could decrease to 13-14 per cent by June 2025. The State Bank of Pakistan (SBP) has indicated that the average inflation for fiscal year 2025 may fall below its previous forecast range of 11.5 per cent to 13.5 per cent.

However, any major changes in global commodity prices, especially oil, could impact these inflation estimates.

The report further notes that with inflation expected to stay around 6.5-7.0 per cent in October, real interest rates could rise significantly, reaching 1,050 to 1,100 basis points—far above the historical average of 200-300 basis points. This increase could support further cuts in the key policy rate.

Read next: Chinese donkey burgers may soon contain meat from Pakistani donkeys