Inflation is expected to decline in the coming months to 0.99 percent MoM average by December 2023 and fluctuate between 23 and 29 percent between June and December, according to the most recent study by Arif Habib Ltd (AHL).
With real interest rates predicted to turn positive in the second half of FY24 and a potential reduction of 400-500 basis points in the policy rate, the retreat is most likely the result of large base effects.
Floods from the previous year, increased taxes, the removal of subsidies, and exchange rate depreciation have resulted in headline inflation of 38%, but the research argues that further raising interest rates will be ineffective and that a comprehensive strategy is required to address the fundamentals.
Impact of Inflation and Economic Outlook of Pakistan
On June 12th, the Monetary Policy Committee (MPC) is anticipated to convene to determine the nation’s future economic course.
Considering the detrimental effects of a monetary squeeze with a provisional GDP of 0.29 and industrial negative growth of 2.94 percent, the research advises against a further increase in policy rates.
According to the analysis, the country’s economy has almost completely stalled due to rising business costs caused by rising interest rates, and any further tightening of monetary policy will only make matters worse.
For input on the anticipated monetary decision coming up next week, AHL polled banks, AMCs, insurance companies, DFIs, and non-financial manufacturing sectors including E&Ps, cement, fertilizers, steel, textiles, and pharmaceuticals.
According to the data, 22.7% of all respondents predict that the policy rate would rise by 100 points, while 77.3% predict that it will stay the same at 21.0%.
To read our blog on “Inflation boosts up to 38% in Pakistan in the month of May,” click here.
