ISLAMABAD: The State Bank of Pakistan (SBP) Governor Jameel Ahmed has forecast a temporary uptick in inflation in the next three to four months, following a period of relief brought about by policy measures. Speaking on a TV show on Monday, Ahmed attributed the expected rise to the “end of base effects” and other upcoming factors.
The governor emphasized the importance of closely monitoring core inflation, which remains persistently high at 9.7%. While the overall inflation rate dropped significantly to 4.9% in November from a peak of 38% within 18 months, Ahmed stressed that risks persist, necessitating careful observation by the SBP.
He noted that while inflation may climb in the short term, it is expected to stabilize afterward, aligning with the central bank’s medium-term inflation target of 5-7% by June 2025.
“The reduction in the policy rate over the last six months is gradually yielding results, but the full impact on economic activities and consumer behavior will take another four to six quarters to materialize,” Ahmed explained.
Earlier in the day, the SBP reduced its key policy rate by 200 basis points to 13%, marking the fifth consecutive cut since June. The move brings the cumulative reduction to 900 basis points from a peak rate of 22% in June 2023. The central bank aims to revive economic activity, which has been hindered by tight monetary policies.
The SBP’s Monetary Policy Committee (MPC) cited easing food inflation and the phasing out of earlier gas tariff hikes as primary drivers of the inflation deceleration. However, it warned that core inflation and volatile inflation expectations remain areas of concern.
The committee also highlighted improvements in Pakistan’s current account, which has been in surplus for the third consecutive month, helping boost foreign exchange reserves to $12 billion. Despite this progress, the MPC stressed the need for “considerable efforts and additional measures” to meet annual revenue targets, a critical aspect of Pakistan’s $7 billion agreement with the International Monetary Fund (IMF).
Governor Ahmed assured that Pakistan is well-positioned to meet its foreign debt obligations with current foreign reserves. He added that the government could save Rs1,500 billion annually due to the reduction in interest rates.
Looking ahead, the SBP remains optimistic about achieving economic stability while acknowledging that challenges, including inflation volatility and fiscal adjustments, will require continued vigilance.
