Islamabad, 31 August 2024 (TDI): In an effort to increase pressure on the central bank to drastically lower interest rates at the next monetary policy meeting, the federal government on Friday lowered its inflation estimate for August to a single digit.
The Ministry of Finance projected in its monthly economic outlook that inflation would stay between 9.5% and 10.5% in August and then drop to 9% to 10% in September due to the stability of economic indicators.
The forecast was less than the previous estimate, made last month by the finance ministry’s economic advisory branch, of 11% for August.
To determine the policy rate for the ensuing two months, the central bank will hold a meeting of the monetary policy committee on September 12. Its steady interest rate lowering in spite of a notable fall in inflation has caused harsh criticism.
At the last meeting, it decided to keep the policy rate at 19.5%. Nevertheless, people close to the military leadership and Finance Minister Muhammad Aurangzeb claimed they were unhappy with the central bank’s overly cautious stance, which was impeding economic expansion and causing a gap in the budget.
The finance ministry has allocated Rs9.8 trillion, or the average interest cost of 18%, for interest payments for the current fiscal year.
However, Governor Jameel Ahmad of the State Bank of Pakistan (SBP) said during a meeting of a parliamentary committee that the true cost of interest should be calculated by deducting the Rs2.5 trillion in profit that the central bank will provide to the federal government during the current fiscal year.
The monetary policy was loosening since there were less inflationary pressures, according to the finance ministry’s report. More sharply than in the previous year, the money supply (M2) contracted by 3.2% in the first month of FY25.
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Inflationary expectations would be well-anchored and a sustainable economic recovery would be supported throughout the year, it was stated, with policy rates adjusted accordingly.
The finance ministry emphasized that strong positive improvements in Pakistan’s economy at the beginning of the new fiscal year have set the tone for positive developments in the months ahead.
It mentioned that the CPI inflation rate decreased last month, indicating that the economy was expected to reach single-digit inflation in the upcoming months. It said that the current account improved and tax collection surpassed the goal in July. It noted that both the fiscal and external sectors had demonstrated resilience, which was attributable to better management.
July had a 2.1% month-over-month increase in inflation, with an annual rate of 11.1%.
Last month, budgetary measures that drove up the cost of necessities saw a dramatic spike in inflation.
On the strength of stronger external demand, a stable currency rate, declining inflation, and looser monetary policy, the finance ministry anticipated that large-scale manufacturing would continue on its upward growth trajectory in the current fiscal year.
However, it stated that crop-specific weather patterns, which would be crucial to crop yields, will determine the agricultural prognosis for Kharif 2024. Rainfall, both recent and continuing, can affect rice, sugarcane, cotton, vegetables, fodder, and rice crops in both good and negative ways, provided that farmlands are not washed away by the downpour.
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While di-ammonium phosphate (DAP) offtake climbed by 8.2% during Kharif 2024 (April–July), urea offtake remained 13.5% lower than it was in Kharif 2023.
Regarding the external front, the ministry reported that imports, exports, and worker remittances were all trending upward. In August 2024, it is anticipated that imports would be $4.5–5 billion, exports will stay between $2.5–3.2 billion, and remittances will be between $2.6–3.3 billion.
