KARACHI: Pakistan’s central bank is expected to hold its key rate steady at a fourth straight policy meeting on Tuesday, with inflation forecast to start easing in coming months paving the way for rate cuts to boost the economy, analysts said.

The country has embarked on a difficult path to economic recovery under a caretaker government after a $3 billion loan programme was approved by the IMF in July that helped avert a sovereign debt default, but contained conditions that complicated efforts to curb inflation.

The SBP policy rate was raised to an all-time high of 22 per cent in June and has stayed unchanged for the last three review meetings. The median estimate in a Reuters poll of 12 analysts predicts no change on Tuesday, with one analyst calling for a 100bps cut.

The market consensus is for rates to start easing gradually in the first half of next year, depending on the trajectory of inflation. “Inflation is still too high and negative real interest rates do not justify any easing at this point. Our trading partners like the US are already at positive real interest rates,” said Usman Zahid, director research at AKD Securities.

Zahid said the 2.7pc month-on-month jump in November inflation was due to the increase in gas prices among other things but annual inflation is likely to start easing from February 2024. Annual inflation clocked in at 29.2pc in November, a slight increase from October but well below a high of 38pc in May.

“Stable currency, low current account deficit and likely fall in inflation in coming months may convince MPC to adjust rates downwards,” said Mohammad Sohail, CEO of Topline Securities, adding that he thinks the key rate could fall by 100bps on Tuesday itself.

Published in Dawn, December 12th, 2023