- Ahmed says risk factors have persisted despite the decline in headline inflation.
- The addition of a future rise in inflation would not be a cause for concern.
- “It will take 4 to 6 quarters to see the full impact of the key rate changes.”
After the State Bank of Pakistan lowered its policy rate to 13% due to a decline in inflation, central bank governor Jameel Ahmed said on Monday that inflation is expected to rise after remaining low for the next three to four months.
Ahmed, speaking on Geo News “Aaj Shahzeb Khanzada Kay Saath,” said “end of base effect and other things going on” were the reasons for an expected rise in inflation.
He said the central bank will have to closely monitor a factor of concern to bring down underlying inflation.
He added that risk factors persist despite the decline in the overall inflation rate which he said would be closely monitored by the SBP.
However, he described the indicators as positive for ending economic uncertainty and moving towards stability after the CPI fell to 4.9% last month from 38% in a year and a half.
The SBP governor said the next rise in inflation would not be a cause for concern as it would stabilize thereafter.
He added that it would take another four to six quarters to fully realize the impact of the policy rate reduction in terms of revival of economic activities and from a consumer perspective.
The SBP chief also expressed optimism that a medium-term inflation range will be achieved by the end of the fiscal year in June 2025, which would bring inflation back to its target value of 5 to 7%.
“We have reduced our policy over the last six months, which is now paying off. However, it will take another 4-6 quarters to see its full impact.”
Commenting on the payment of external debt, the central bank governor said Pakistan would have no difficulty in repaying its debts with its current foreign exchange reserves.
He said the government would save Rs 1.5 trillion after cutting interest rates.
Earlier in the day, the SBP cut its policy rate by 200 basis points to 13 percent, its fifth consecutive cut since June, as the country continues its efforts to revive a sluggish economy with slowing inflation.
The Consumer Price Index (CPI) for November came in at 4.9%, in line with Monetary Policy Committee (MPC) expectations, well below the general market consensus.
“This deceleration is mainly due to the continued decline in food inflation as well as the gradual disappearance of the impact of the increase in gas prices in November 2023,” noted the MPC, adding that inflation below The underlying rate, at 9.7%, is proving to be sticky, while consumer and business inflation expectations 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 increase foreign exchange reserves to around $12 billion.
The statement said that taking into account the above developments, the MPC believes that the real policy rate remains sufficiently positive to stabilize inflation within the target range of 5-7%.
Pakistan is navigating a difficult economic recovery path and was supported 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 objective of the IMF agreement.
Monday’s decision follows cuts of 150 basis points in June, 100 basis points in July, 200 basis points in September and a record 250 basis point cut in November, which sent the rate compared to its historic high of 22%, set in June 2023 and left unchanged for one year.
This brings total cuts to 900 basis points since June.