Inflation outlook FX volatility and real interest rates

Dunya Executive - - FINANCIAL CORNER -

On the FX front, everyth ng s qu et and th ngs are ‘normal’. Or are they? If we look at the mpl ed volat l ty, yes there s a return to normalcy. Swap rates are also rather well-behaved and although they aren’t exactly where they were before the Brunson Affa r, they stand lower now compared to August. So far so good.

Th s s so desp te the fact that FX volat l ty s now over, the spot market looks stable, and domest c demand s contract ng dramat cally. Even under these rather benevolent c rcumstances, the accumulated and/or deferred nflat on s so h gh that t w ll take a few months before the FX

pass-through completely fades away. Furthermore, the CPI d ffus on ndex reveals the real s tuat on as f t were a suff c ent stand-alone stat st c. CPI nflat on s so w dely d ffused across sectors that even n the absence of h gh food

nflat on, t would take t me to tame t.

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