S&P predicts Pakistan's average inflation in 2024 at 13.2%, interest rate cuts in Nov and Dec

International ratings agency Standard and Poor's (S&P) forecasts an average inflation rate for Pakistan of 13.2% for 2024, with a reduction expected by the end of the year. This reduction is anticipated to come through rate cuts during the Monetary Policy Committee (MPC) meetings in November and December.

Pakistan's inflation is projected to continue its downward trend in the coming months. However, cumulative inflation is expected to remain in double digits, S&P Global Market Intelligence reported.

This outlook provides the State Bank of Pakistan (SBP) with additional room to further lower the policy rate. The SBP has already reduced rates by 450 basis points since June, and analysts anticipate another 200-basis-point cut by the end of 2024, likely to be implemented during the Monetary Policy Committee (MPC) meetings in November and December.

However, risks remain skewed to the upside. These include the impact of budgetary measures such as higher taxes on the agriculture, wholesale, and retail sectors, and expected increases in electricity and gas tariffs under the new IMF Extended Fund Facility (EFF) program.

In its Economic Outlook, the Ministry of Finance noted that after a period of decline, large-scale manufacturing (LSM) is regaining its footing, with major exporting sectors ready to scale up production. This recovery is expected to be supported by a favorable external environment, a stable exchange rate, and declining inflationary pressures.

Additionally, an accommodative monetary policy stance, improved investor confidence, and global market recovery will further bolster sustainable industrial growth. The government's commitment to fiscal consolidation is also expected to improve fiscal accounts. For the agriculture sector, the outlook for Kharif 2024 production remains positive, with weather conditions being a critical factor for productivity.

This comprehensive economic outlook suggests a cautiously optimistic future for Pakistan's economy, with significant potential for growth and stability.