Pakistan’s headline inflation rate has declined for the fifth consecutive month, reaching 11.8% in May. As a result, S&P Global Market Intelligence expects the State Bank of Pakistan (SBP) to lower the policy rate.

According to the analysis, the realized headline consumer price index (CPI) inflation of 11.8% for May was considerably lower than market expectations, primarily due to a notable deflation in food prices, particularly perishables.

Inflation is projected to continue its declining trend in the coming months, mainly due to favorable base effects.

However, inflation is expected to remain in the double-digit range, with S&P Global Market Intelligence forecasting an average monthly year-over-year inflation rate of 13.7% for 2024.

SBP keeps interest rate unchanged at 22% for sixth consecutive session

SBP chief says deceleration in inflation is broad-based

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Due to elevated inflation, heightened global financial market uncertainty, and the upcoming budget announcement in June, the SBP maintained its policy rate at 22% during its April 29 meeting.

Nevertheless, the recent softening in headline inflation increases the likelihood of the SBP lowering its policy rate in June 2024.

Overall, S&P Global Market Intelligence projects a cumulative 450 basis point reduction in the policy rate by the end of 2024.