KARACHI: Most analysts predict a seventh consecutive rate cut by Pakistan’s central bank on Monday, amid the country’s first International Monetary Fund (IMF) review for its $7 billion bailout and near-decade low inflation.
Pakistan’s central bank’s current easing cycle, one of the most aggressive among emerging markets, follows a six-month series of rate cuts totalling 1000 basis points (bps), which brought the key rate down from a record high of 22 percent in June to 12 percent, with the latest 100 bps cut in January.
As Pakistan undergoes economic reforms mandated by the IMF program, it stands to secure additional funding from the global lender, pending the ongoing review.
The cash-strapped South Asian nation could unlock a tranche of funding if the ongoing review is approved, ahead of its annual budget presentation looming in June.
Inflation for the month of February clocked in at a near decade low of 1.5 percent, largely due to a high base a year-ago.
A Reuters survey of 14 analysts suggests that the central bank may further reduce rates, with a median forecast of a 50 bps cut.
Of the 10 analysts who expect a rate cut: three anticipate a 100 bps cut, one a 75 bps cut, and six a 50 bps cut. The remaining four analysts predict no change.
Most analysts predicting a rate cut believe the central bank will stop reductions when rates hit 10.5-11 percent, due to a potential inflation rise and anticipate a moderate rise in inflation from March to May.
Ahmad Mobeen, senior economist of S&P Global predicts inflation will “bottom out” in Q1, then gradually rise.
He anticipates a 6.1 percent average inflation for 2025. Despite the “sharp drop” in the Consumer Price Index (CPI), he notes that urban core inflation, indicative of ongoing price pressures, remains high at 7.8 percent.
“The S&P Global HBL Pakistan Manufacturing PMI also indicates rising input costs, pushing manufacturers to hike prices in February 2025 at the fastest pace since October 2024,” he said.
In the last policy meeting, the bank maintained its forecast of full-year GDP growth at 2.5 percent-3.5 percent and predicted faster growth would help boost the country’s previously struggling foreign exchange reserves.
“While GDP posted 0.9 percent growth in 1QFY25, large-scale manufacturing remains in negative territory, and production has yet to gain momentum. The transmission of lower rates to economic activity is yet to be seen,” said Sana Tawfik, head of research at Arif Habib Limited.
She added that the target is only possible if industrial activity picks up and agricultural output improves.
POLL: Pakistan eyes seventh straight rate cut amid decade low inflation, IMF review
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POLL: Pakistan eyes seventh straight rate cut amid decade low inflation, IMF review
- Pakistan follows a six-month series of rate cuts, which brought the key rate down from a record high of 22 percent in June to 12 percent in January
- As Pakistan undergoes economic reforms mandated under the IMF program, it stands to secure additional funding from the global lender
Pakistan says militants attempted drone attacks inside its territory, Afghanistan says carried out airstrikes
- Islamabad says anti-drone systems intercepted devices in three cities
- Kabul says it carried out airstrikes in Pakistan after earlier strikes in Afghanistan
ISLAMABAD: Pakistan on Friday said militants attempted to launch small drones inside its territory, while Afghanistan’s ministry of defense claimed it had carried out retaliatory airstrikes in “various areas of Pakistan,” marking a sharp escalation in cross-border hostilities between the bitter neighbors.
The developments follow Pakistani airstrikes earlier this week targeting what Islamabad said were Tehreek-e-Taliban Pakistan (TTP) and Daesh militant camps inside Afghanistan. Pakistan said those strikes killed more than 100 militants, while Kabul said women and children were killed and condemned the attacks as violations of Afghan sovereignty.
On Thursday night, Afghanistan’s Taliban authorities said they had launched “large-scale offensive operations” against Pakistani military bases and installations, prompting Pakistan to say its forces were responding to what it described as unprovoked fire along the shared border.
Pakistan’s Information Minister Attaullah Tarar said on Friday afternoon militants had attempted drone activity inside three Pakistani cities.
“Fitna al khawarij [TTP] terrorists have attempted to launch small drones in Abbottabad, Swabi and Nowshera. Anti Drone Systems have brought down all the drones. No damage to life,” Tarar said.
“The incidents have again exposed direct linkages between Afghan Taliban Regime and Terrorism in Pakistan.”
Afghanistan’s Ministry of National Defense, in an X statement, said it carried out airstrikes inside Pakistan.
“The Ministry of National Defense of Afghanistan today, before noon, at around eleven o’clock local time, carried out airstrikes in various areas of Pakistan,” the statement said.
“These attacks were carried out in response to last night’s aerial incursions by Pakistani forces in Kabul, Kandahar, and Paktia.”
Pakistan has not confirmed any damage from the Afghan claim.
Earlier Friday, the Pakistani prime minister’s spokesman Mosharraf Zaidi said counter-strikes were continuing after what Islamabad described as unprovoked Afghan fire along the border.
“A total of 133 Afghan Taliban are confirmed killed, more than 200 wounded,” Zaidi said in an X update. “Twenty seven (27) Afghan Taliban posts have been destroyed, and nine (9) have been captured.”
On the Afghan side, the defense ministry claimed 55 Pakistani soldiers were killed and that two garrisons and 19 posts were captured. Pakistani officials denied losing any posts. None of the casualty figures or battlefield claims from either side could be independently verified.
Amid the escalating rhetoric, Pakistan’s State Minister for Interior Talal Chaudhry urged Afghanistan’s Taliban leadership to change its approach.
“They must behave like a state, not like a guerrilla force,” Chaudhry told reporters in Islamabad. “Until their behavior changes, we will adopt every possible option to make it change.”
Chaudhry said the United Nations had confirmed that over two dozen militant groups operate from Afghan territory and added that brotherly countries “do not send militants who slaughter our youth, attack school buses carrying children, or make places of worship and innocent women unsafe.”
Cross-border violence has intensified in recent weeks, with Pakistan blaming a surge in suicide bombings and militant attacks on insurgents it says are based in Afghanistan. Kabul denies providing safe havens to anti-Pakistan militant groups.
The latest clashes mark the third major escalation between the neighbors in less than a year. Several regional countries, including China, Russia, Saudi Arabia and Iran, have urged restraint as operations on both sides continued Friday.
The confrontation unfolds against a backdrop of growing friction over Afghanistan’s regional alignments. Pakistan has repeatedly accused the Taliban authorities of allowing Indian influence to expand in Afghanistan, an allegation Kabul has rejected.
Pakistan’s defense minister Khawaja Asif earlier said the Taliban government had turned Afghanistan into “a colony of India.”
Islamabad has long accused India of using Afghan territory to support anti-Pakistan militant groups, a charge New Delhi denies.
