SBP governor sees inflation going up after 3 to 4 months
Central bank will have to closely monitor factor of concern to bring down core inflation, says Jameel Ahmed
- Ahmed says risk factors persisted despite decline in overall inflation.
- Adds next hike in inflation would not be a matter of concerns.
- “4-6 quarters required to see full impact of policy rate changes.”
After the State Bank of Pakistan slashed the key policy rate to 13% owing to a drop in inflation, central bank governor Jameel Ahmed said on Monday that the inflation is expected to go up after remaining low for the next three to four months.
Ahmed, speaking on Geo News programme “Aaj Shahzeb Khanzada Kay Saath”, said that the “end of base effect and some other things in pipeline” were the reasons for an expected hike in inflation.
He detailed that the central bank will have to closely monitor a factor of concern to bring down the core inflation.
He added that risk factors persist despite the decline in overall inflation rate which he said would be closely monitored by the SBP.
However, he termed the indicators positive for ending economic uncertainty and heading towards stability after the CPI brought down to 4.9% last month from 38% within 1.5 years.
The SBP governor said that the next hike in inflation would not be concerning as it would stabilise afterwards.
He said the it would take another four to six quarters to fully realise the full impact of reduction in the key policy rate in terms of surge in economic activities and consumers’ point of view.
The SBP chief also expressed optimism of achieving a medium-term range of inflation by the end of the fiscal year in June 2025 which would bring down inflation to its targeted value of 5-7%.
“We have been reducing policy for the last six months, which is bringing impact now. However, it will require another 4-6 more quarters to see its full impact.”
Commenting on the payments of foreign debts, the central bank’s governor said that Pakistan would not face any difficulty in paying off its debts with its current foreign reserves.
He said that the government would save Rs1,500 billion after a reduction in interest rate.
Earlier today, the SBP cut its key policy rate by 200 basis points to 13%, its fifth straight reduction since June as the country keeps up efforts to revive a sluggish economy with inflation easing.
The consumer price index (CPI) for November clocked in at 4.9% in line with the Monetary Policy Committee (MPC) expectations — well below the general market consensus.
“This deceleration was mainly driven by continued decline in food inflation as well as the phasing out of the impact of the hike in gas tariffs in November 2023,” noted the MPC, adding that the core inflation, at 9.7%, is proving to be sticky, whereas inflation expectations of consumers and businesses remain volatile.
The committee, which met today, also noted that the current account remained in surplus for the third consecutive month in October 2024 which helped increased the forex reserves to around $12 billion.
The statement said that considering aforementioned developments, the MPC views the real policy rate remains appropriately positive to stabilise inflation within the target range of 5 to 7%.
Pakistan is navigating a challenging economic recovery path and has been buttressed by a $7 billion facility from the International Monetary Fund (IMF) in September.
The bank noted that “considerable efforts and additional measures” would be required for Pakistan to meet its annual revenue target, a key focus of the IMF agreement.
Monday’s move follows cuts of 150bps in June, 100 in July, 200 in September, and a record cut of 250bps in November, that have taken the rate down from an all-time high of 22%, set in June 2023 and left unchanged for a year.
It takes the total cuts to 900bps since June.
