New York July 25 2024: With the disinflation trend still intact, the SBP has the room to ease the policy rate by another 500-600bps in FY25, with potentially a front-loaded profile while external conditions stay benign, states JP Morgan in its recent research report.
The EFF program is a timely and material boost to Pakistan external stability as it will likely unlock additional financing from other major official creditors. JP Morgan expect further accumulation of foreign reserves (another US $6bn to $15bn) by end-FY25
Stronger external stability that comes with a new EFF program removes a key obstacle for the SBP to resume policy easing. In our view, periodic energy price adjustments and rate-based taxation measures (i.e., higher sales and excise taxes) should not materially affect the disinflation trend due to offsetting drags from a weaker domestic demand and we expect headline CPI to moderate from 23.9% in FY24 to 9.5% in FY25.
JP Morgan Taylor Rule model shows that there is substantial room for easing. As such, we expect the SBP to deliver at least 500- 600bp of rate cuts in FY25, with potentially a front-loaded easing profile in 1H FY25 while external conditions remain benign.
After over two years of uncertainty, the EFF program is a timely and material boost to Pakistan’s external debt repayment ability. We expect further accumulation in foreign reserves (from US$9 billion to US$15 billion) in the next 12 months, supported by the normalization of official creditor inflows, even as the current account (CA) deficit widens slightly, and Pakistan stays on the sidelines of the offshore bond market.
