Recent data show inflation stayed soft across Asia last month, with Thailand, Sri Lanka, and China all in deflation. While the jump in oil prices following Israel’s attacks on Iran pose an upside risk to inflation, oil prices would need to rise to around US$100 per barrel for there to be a significant impact on inflation.
Meanwhile, Pakistan’s budget for the upcoming fiscal year envisages a sharp tightening in fiscal policy, with taxes set to rise and spending to fall. Growth is already weak, and the squeeze will put extra downward pressure on the economy. With fiscal policy being tightened, we expect the central bank to cut rates again on Monday.
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