Pakistan Economy : Benign CPI trend in Apr’18 may delay policy rate hike
- We estimate CPI for Apr’18 at 2.8% (lowest since Nov’15) vs 3.2% in Mar’18, based on (i) soft increase in food inflation, and (ii) high base effect.
- A better harvest this year has led to more stability in food prices, in our view. This appears to have masked the impact of exchange rate deval pass-on during Apr’18.
- We highlight downside risk to our FY18 CPI estimate of 4% (9MFY18 average CPI is 3.78%) and more importantly, potential downside risk to FY19E CPI of 6%.
- This may as well have potential monetary policy implications. While case of policy rate hike remains intact in our view, we flag timing of rate hike may be pushed to 4Q18 amid/alongwith renewed interest from banks towards government securities.
- Key risk to our prognosis is CPI trend for May-Jun’18, which remains crucial as it involves more swing factors than usual (Ramadan, Budget, and rising oil price). Hence for now, we maintain our view of cumulative 75bps rate hike likely by Jul’18
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