The loss in aggregate demand coupled with plunging energy prices have reduced the inflationary pressures. Corona is a double edge sword: demand destruction and supply chain disruption.
Jobs of Central Bank have gotten tougher. Developed markets don’t have easing space in near negative territory. Deflation wreaked havoc in Japan as a classic case study. Triple the efforts would be required – or oil prices surge – to bring inflation to 2-4% in developed countries.
For Emerging Markets, if you have got your currency under control, you shall be enjoying low-flation as well. However, weak pricing control and increase in prices post lock down to recoup losses can not be ruled out.
SBP has a fine balance to maintain on Friday: lower inflation gives room to ease last bit at the risk of run currency slippage. The immediate task is to keep the markets fluid, functioning, restore confidence and reduce government borrowing costs if you are not monetizing debt (SBP buying directly from the government).
