Inflation predicted to fall below 3 per cent, signalling further rate cuts

ISLAMABAD: Inflation in Pakistan is expected to continue on its downward path, with experts predicting it could drop below 3 per cent in January 2025, marking a significant shift from the high levels seen last year.

Market experts from JS Global highlighted this trend in a report released on Wednesday, saying, “We expect the ongoing disinflation trend to persist, with January’s Consumer Price Index (CPI) likely to hit 2.8 per cent. This will be the lowest figure since November 2015, mainly due to the high base effect, despite a slight monthly increase of 0.6 per cent.”

According to the report, this would bring the average inflation for the first seven months of the fiscal year (7MFY25) to 6.7 per cent, down from 28.7 per cent during the same period in the previous fiscal year.

Another brokerage firm, Ismail Iqbal Securities Limited, echoed this view. Their recent report projected a 2.9 per cent inflation rate for January 2025, a sharp drop from the 28.3 per cent recorded in January 2024. This substantial decrease highlights the easing of price pressures.

December 2024 also saw a decrease in inflation, with the year-on-year rate at 4.1 per cent, lower than November 2024’s figure of 4.9 per cent, as reported by the Pakistan Bureau of Statistics.

These steady drops in inflation readings have prompted speculation about further cuts to the key policy rate by the central bank. JS Global remarked, “With inflation continuing to decline, staying in the higher single digits from May 2025 onward, we believe the Monetary Policy Committee (MPC) has a strong case for continuing the rate-cutting cycle.” They anticipated a smaller rate cut of 100 basis points (bps) this month compared to the larger cuts seen recently.

Ismail Iqbal Securities shared a similar outlook, predicting a 100 bps cut in the upcoming policy meeting. However, they noted that the central bank might adopt a more cautious approach afterward to monitor inflation trends, with either minor cuts or a pause in rate reductions.

The brokerage firm also warned that inflation pressures could return by May 2025 as the base effect wears off, potentially pushing headline inflation higher.

In December, the State Bank of Pakistan’s MPC decided to reduce the policy rate by 200 bps, bringing it down to 13 per cent. Over the past five monetary policy meetings, the policy rate has been cut by a total of 900 bps since June 2024.

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