Pakistan’s IMF program back on track: JP Morgan

May 30, 2022 (MLN): After considerable political uncertainty and economic crisis, the increase in domestic fuel prices by the government and the State Bank of Pakistan (SBP)’s policy rate hike of 150 bps- the key IMF demands- will bring back the IMF program on track, said JP Morgan in its latest report.

“This should go a long way in securing the extension of the EFF facility, and subsequently other multilateral loan facilities (e.g. World Bank, ADB).”

The country’s inflation profile continues to worsen, with evidence of broad-based, second-round price pressures across core goods & services, in addition to higher imported food and energy costs. Headline CPI in April has risen to a 2-year high of 13.4% YoY, while core CPI is up to a 10-year high of 10.3% YoY.

JP Morgan, a global leader in financial services expects headline CPI to rise 0.7% MoM and 14.1% YoY in May, driven by higher imported inflation, food costs, and core pressures.

Inflation momentum could stay elevated through 3Q22 if and when energy subsidies are removed, though higher pump prices could be partially offset by the demand destruction from eroding real incomes, it noted.

After the recent policy rate hike of 150bps, the forward-looking real policy rate now stands at 3.6%, based on JP Morgan’s FY22 headline inflation estimate of 10.2%.

“This provides some room for CPI upside surprise in the next few months. As such, we are inclined to think that the SBP will stand pat in the next MPC meeting in July.”

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