KARACHI: Consumer price index (CPI) for the month of November 2018 is expected to rise to 7.51 percent as compared to an increase of 6.78 percent registered in October 2018, endorsing the Pakistan’s central bank’s monetary tightening stance.
Analysts are unanimous that the upcoming monetary policy statement would bring another 100bps hike in the key interest rates.
“We expect central bank to continue the monetary tightening stance and hike interest rate by a further 100bps, thereby incrementing policy rate to 9.5 percent (+375bps in CY18),” Mohammad Nabeel at Pearl Securities said.
“Our expectation behind the 100bps increase in rates is predicated upon rising inflation, thereby curtailing real interest rate, along with SBP’s aim to maintain interest rate differential between Pakistan and developed economies, particularly US, which is also in the midst of monetary tightening cycle”.
On a monthly basis, CPI is forecasted to increment 1.09 percent in November 2018 versus a rise of 2.33 percent recorded in the previous month.
The rise in November 2018 CPI is predicated upon hike in prices of several CPI constituents, with major contribution anticipated from housing & utilities group (+11.71 percent YoY) due to significant hike in gas/power rates along with 2.43 percent YoY rise expected in prices of food & non-alcoholic beverages group (heavyweight CPI constituent).
Moreover, considerable rise in transport (17.89 percent YoY), double-digit accretion in education (10.54 percent YoY), 6.60 percent YoY rise in clothing & footwear and 7.91 percent YoY increase in the prices of miscellaneous goods & services are also anticipated to contribute to November 2018 inflation reading.
“With regards to our FY19 inflation forecast, we expect headline inflation to hover between 8.0 percent- 8.5 percent as impact of hefty devaluation in Pak Rupee, significant hike in utility prices (gas, power) and re-emergence of food inflation are likely to accentuate inflationary pressures in the near term.
Moreover, external factors such as persistent rate hikes by US-Fed (cumulative 100bps increase in US interest rate in CY18 according to latest US-Fed dot plot) are also likely to maintain pressure on Pak Rupee and amplify inflation through higher import bill/domestic petroleum products’ prices.
Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is scheduled to hold its last meeting of CY18 on 30th November to unveil it’s monetary policy stance and provide an economic assessment & outlook for FY19.