The MPC stressed adopting a cautious approach noting that
core inflation remains elevated, with high frequency indicators showing gradual
improvement. The impact of 1,000bps reduction in the policy rate since June 2024
will continue to unfold, driving growth.
The committee also added that 1QFY25 GDP growth remained
below expectations.
Tax
collection during 1HFY25
also remained below the target.
Global oil prices remained volatile and that the global
economic policy environment has become more uncertain.
Going forward, economic activity is expected to gain more
traction with GDP growth for FY25 in the range of 2.5 to 3.5%.
Headline inflation for FY25 is now expected to average
between 5.5 to 7.5%, subject to risks from volatile commodity prices,
adjustment to energy prices, volatile food prices and impact of revenue
measures.
On the fiscal front achieving the target for primary surplus
would be challenging, while overall deficit is likely to come close to the target.
Outlook for the current account has improved considerably
due to robust remittances. The current account balance for FY25 is anticipated
to swing between a surplus and a deficit of 0.5% of GDP.
Monetary policy stance remained appropriate to stabilize inflation within the target range. Wherein, food inflation remained low in December 2024 due to adequate inventory, supported by YoY decline in energy prices due to a sizeable reduction in electricity tariff and fuel prices; amidst a favorable base effect.
ReplyDeleteCore inflation is also easing gradually albeit still at an elevated level. Nevertheless, NCPI is expected to increase during 4QFY25 owing to the base effect and other anticipated adjustments.
Crop outlook remains weak compared to the last year – a major laggard in terms of GDP growth. Although high frequency growth indicators continue to show improvement.
LSM growth FY TD stands at 1%. Modest pick-up in economic activity likely in 2QFY25. This is supported by the performance of the Purchasing Managers Index and growth in business employment.
Current Account remained in surplus supported by robust remittances and exports mainly. However, imports have picked-up but favourable global commodity prices and low domestic oil demand have kept the growth in check.
SBP shared its forecasts for key economic indicators as follows: i) Headline Inflation for FY25 to average 5.5-7.5%; ii) Current Account Balance to arrive within a Surplus or deficit of 0.5% of GDP for FY25; iii) Real GDP Growth: Expected at 2.5-3.5%; and iv) SBP FX Reserves by Jun’25 end to clock-in at ~USD 13Bn at least.
The Governor shared that out of Pakistan’s external debt obligations of US$26.1billion for FY25; US$16 billion has been or is expected to be rolled-over. Whereas, US$6.4 billion of the remaining has been repaid already. Expected external debt repayments for the remainder of FY25 stand at US$3.7 billion. These are likely to be funded by the expected FX inflows going forward.
The Governor also shared that further monetary easing will have little impact on the borrowing cost of the Federal Government due to the re-pricing lag on different Government securities. However, reduction in the policy rate will adversely impact SBP’s profitability. Wherein, earnings from SBP’s foreign exchange portfolio will help offset some of the decline.
IMF program remains on track with the next review scheduled to take place in Marh 2025. As far as the SBP is concerned all IMF targets and benchmarks have been met. Continued fiscal consolidation remains important.