SBP to Cut Interest Rate By 200 Basis Points in November: Report

Pakistan’s Consumer Price Index (CPI) for October 2024 is expected to be 6.5-7.0 percent YoY (+0.9 percent MoM), taking the 4MF25 average to 8.6 percent compared to 28. percent in 4MFY24. During October 2024, food inflation is expected to increase by 0.7 percent MoM mainly on the back of a rise in wheat price and chicken prices, Topline Securities said in a report. Interest rate outlook: The Central Bank monetary policy meeting is scheduled on November 04, 2024, wherein the report expects a fourth consecutive cut in interest rates to the tune of 200bps from the current level of 17.5 percent, taking the total cut to 650bps in the last 4-5 months. The report sees the policy rate to come down to 13-14 percent by June 2025. 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.