Monetary policy decision is due today. Three macro variables are making a compelling argument for a big rate cut. These include sharply falling headline inflation, consistently running primary fiscal surplus, and anemic economic growth. However, the story is not complete without the fourth—external account — where falling SBP forex reserves are calling for a cautious stance.

There are uncertainties about the implications of Trump’s tariffs and growing risk of escalation with India. These, along with a net negative balance of payments in the last four months, demand holding the policy rate or opting for a marginal cut. Nonetheless, the chances of policy rate reaching 9–10 percent by year-end are growing.

The headline inflation fell to a multi-decade low of below just 1 percent in the last two months. The month-on-month reading is negative in four out of the last twelve months. Analysts expect CPI to remain below 5 percent in the next 12 months. SBP is on track to keep headline inflation well within its medium-term target of 5–7 percent.

However, core inflation is not falling in tandem with the headline. It rose by 1.2 percent MoM in April, whereas the headline fell by 0.8 percent. Core........

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