In its most recent report released on Thursday, the Finance Division predicted that Pakistan’s Consumer Price Index (CPI)-based inflation would remain stable in February but would probably increase little in March.
The “Monthly Economic Update and Outlook” for February 2025 predicts that inflation will stay between two and three percent in February and then slightly climb to three to four percent in March.
The seasonal spike in food prices during Ramadan is the reason for this surge.
Higher household spending on food, drinks, and other consumables at this time usually results in inflationary pressures, which analysts believe will help drive the expected increase in the inflation rate.
The research also emphasized that, with the help of a supportive monetary policy, inflationary pressures should decrease over the year. Despite the sector’s sluggish recovery, this trend is expected to promote a more stable financial climate, increasing company confidence and aiding in the recovery of large-scale manufacturing (LSM). Even while the LSM recovered more slowly, the report also pointed out that export-oriented industries kept expanding.
According to the Finance Division’s projection, the State Bank of Pakistan (SBP) was able to reduce its benchmark interest rate by 100 basis points to 12% in January due in large part to the decline in inflation. After a string of dramatic rate reduction over the previous six months with the goal of promoting growth and containing inflation, this cut was a component of the larger monetary easing cycle.
One of the biggest rate cuts among emerging economies occurred last year when the SBP cut its policy rate from a record high of 22% in June 2024. The goal of these reductions was to control inflation, which had risen to a record 38% in May 2023 but had since begun to decline. According to data from the Pakistan Bureau of Statistics (PBS), CPI-based inflation from January 2025 was 2.4% year-over-year, which was lower than the 4.1% rate in December 2024.
According to the Finance Division study, positive supply-side variables and low domestic demand reduced inflationary pressures. The financial climate has become more stable as a result of these factors and declining interest rates, allowing the SBP to continue its strategy of gradual rate reductions.
The research also highlighted encouraging trends in foreign direct investment (FDI) and remittances, which have improved economic optimism. It is anticipated that these elements, in addition to robust growth in imports and exports, will contain the current account deficit in the upcoming months.
