Time for SBP to slow interest rate cuts - Not more than 1% please!

Thank god for belated stability in the economic numbers. Rising current account surplus buoyed by overseas Pakistanis remittances and a relatively closed economy with mild import restrictions have brought stability back. All this is only possible due to an overarching support from IMF (the lender of last resort). It's just been less than a year to stability - do not risk it away.

Though it is tempting for policy makers to see inflation cool to 3%, remittances clocking at USD 3B (your author said it a while ago), consistent current account surplus and yet buying USD from the market, SBP must learn from it's mistakes. Or the mistakes political pressure made it too in 2017-8 and 2021-22. Having reduced rates from 22% to 13% in material chunks, now it's time to moderate the pace and send a message.

The message has to be clear the come what may SBP would prioritize macroeconomic stability over spurring consumption led growth. SBP would also unzip the wallet of USD once we earn it through exports and FDI (remittances ought to be ignored as politicians don't play direct part in it). This will give confidence to businessmen - despite them crying foul - foreign investors, lenders and rating agencies.

Also, inflation decline is based on low base effect. There is going to be increase in gas prices in February, oil prices have creeped up to USD 80s though Ukraine and Middle East peace is in sight and core inflation is still in stubborn single digits. Current sharp decline in interest rates will start showing impact on imports in next few quarters.

Meanwhile, monitor the FX, Rupee, Exports and Inflation. Don't forget this is still the first year of current political set up and IMF program - you don't need to chase growth. If SBP truly wants to depict prudence and political independence, cut of 50-100% is just fine. There is always tomorrow to aim single digits, iA.