IIS Research expects a 25-50bps interest rate cut

Ismail Iqbal Research has just published its report on the CPI outlook and SBP monetary policy. The firm expects a decline in inflation in April and also a rate cut in the next monetary policy scheduled on 29th April 2024.

Here are some details from their report:

Decline in Year-on-Year Inflation Expected in April

Inflation is forecasted to decline to 17.1% year-on-year (YoY) in April 2024, compared to 20.7% in March 2024. On a month-on-month (MoM) basis, inflation is anticipated to decrease by 0.5%, following a 1.7% increase in March 2024. This reduction in inflation is primarily attributed to lower wheat prices, a downward adjustment in Fuel Cost Adjustment (FCA) by 6.8%, and a high base effect in April 2024.

Monetary Policy Considerations by the State Bank of Pakistan

With inflation significantly below the Policy Rate (PR), the gap between the PR and Consumer Price Index (CPI) is expected to widen to its largest extent in approximately 57 months, or around 5 years. This situation provides the State Bank of Pakistan (SBP) with ample room to initiate monetary easing measures. However, ongoing discussions with the International Monetary Fund (IMF) prioritize economic adjustments and austerity measures, which could initially lead to inflationary pressures.

Additionally, the recent surge in oil prices poses a potential threat to currency stability, necessitating a cautious approach to beginning an easing cycle. Despite these challenges, it is anticipated that the SBP may opt for a modest reduction of 25-50 basis points in the upcoming Monetary Policy Committee (MPC) meeting, with further decreases contingent upon evolving economic circumstances.

The information in this article is based on research by Ismail Iqbal Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.