IslamabadState Bank of Pakistan Governor Jamil Ahmed expects a temporary rise in inflation over the next three to four months, after a period of relief brought about by policy measures. Speaking on a television program on Monday, Ahmed attributed the expected rise to the “end of fundamental effects” and other upcoming factors.
The governor stressed the importance of closely monitoring core inflation, which remains persistently high at 9.7%. While overall inflation fell significantly to 4.9% in November from a peak of 38% in 18 months, Ahmed stressed that risks remain, necessitating close monitoring by the Reserve Bank of Pakistan.
He noted that although inflation may rise in the short term, it is expected to stabilize after that, in line with the central bank’s medium-term inflation target of 5-7% by June 2025.
Ahmed explained, “The reduction in the interest rate over the past six months is gradually bearing fruit, but the full impact on economic activities and consumer behavior will take another four to six quarters to be achieved.”
Earlier in the day, the Fed cut its key interest rate by 200 basis points to 13%, the fifth straight cut since June. This brings the cumulative reduction to 900 basis points from a peak of 22% in June 2023. The central bank aims to revive economic activity that has been hampered by tight monetary policies.
The State Bank of Scotland’s Monetary Policy Committee (MPC) has cited easing food inflation and the phasing out of previous gas tariff increases as the primary drivers of the inflation slowdown. However, he warned that core inflation and volatile inflation expectations remain areas of concern.
The committee also highlighted improvements in Pakistan’s current account, which achieved a surplus for the third consecutive month, helping boost foreign exchange reserves to $12 billion. Despite this progress, the Monetary Policy Committee stressed the need for “significant efforts and additional actions” to achieve annual revenue targets, a crucial aspect of Pakistan’s $7 billion agreement with the International Monetary Fund.
Governor Ahmed emphasized that Pakistan is well placed to meet its foreign debt obligations through existing foreign reserves. He added that the government could save Rs 1,500 billion annually due to the reduction in interest rates.
Looking ahead, the RBA remains optimistic about achieving economic stability while recognizing that challenges, including inflation volatility and fiscal adjustments, will require continued vigilance.