Economic Cycle Signal (Pakistan)

📊 Economic Cycle Signal (Pakistan)

This indicator overlays both the Pakistan Policy Rate (PKINTR) and the Pakistan Inflation Rate YoY (PKIRYY) directly onto your KSE or Pakistan market chart. It visually connects monetary policy and inflation dynamics with market performance, helping traders and analysts understand how shifts in economic conditions impact risk assets in Pakistan.

🔹 Key Features

• Plots the monthly Pakistan Policy Rate alongside your chart.
• Overlays the Pakistan Inflation Rate YoY to track how price pressures evolve before policy rate adjustments.
• Shades the background to reflect different economic cycle phases (recovery, recession, expansion, late cycle).
• Highlights how equities and other risk assets react during shifting monetary and inflationary conditions.
• Provides a clear traffic-light style signal for quick macro interpretation.
• Now includes dynamic inflation color logic based on the State Bank of Pakistan’s (SBP) 5–7% target range and thresholds for overheating or cooling inflation.

🔹 Inflation Line Color Logic (New)

The inflation line color dynamically reflects whether inflation is within or outside SBP’s target range, and whether it’s rising or falling:

Inflation Condition Interpretation Line Color
Inflation > 7% and Rising Inflation overheating (well above SBP target) 🔴 Red
Inflation > 7% and Falling Cooling off from high levels 💚 Lime
Inflation < 5% and Falling Disinflation / stable price environment 🟢 Green
Inflation < 5% and Rising Early inflation rebound 🟡 Yellow

This adaptive color logic mirrors the interest rate cycle signals, helping traders instantly interpret Pakistan’s inflation trajectory and anticipate potential monetary policy turning points.

🔹 How Traders & Analysts Can Use It

• Visualize Pakistan’s monetary policy cycles and inflation trends in real time.
• Identify supportive phases when rate cuts or low policy rates follow controlled inflation.
• Detect tightening cycles when inflation spikes and the SBP reacts with rate hikes, often creating headwinds for equities.
• Use as a macro compass to anticipate inflation pressure, potential policy actions, and shifts in market risk appetite.
• Combine with technical analysis, fundamentals, or macro indicators for deeper insights into Pakistan’s economic conditions.

🔹 Color Legend (Economic Phases)

🟩 Light Green → Recovery (Early Cycle)
• Rates: low or falling
• Inflation: low/stable

🟩 Green → Recession (Down Cycle)
• Rates: cut aggressively
• Inflation: falling

🟨 Yellow → Expansion (Mid Cycle)
• Rates: rising gradually
• Inflation: moderate

🟥 Red → Overheating (Late Cycle)
• Rates: high / rising fast
• Inflation: high

🔹 Inflation Context

• SBP’s medium-term inflation target range is 5–7%, aimed at balancing growth and price stability.
• The script applies the same visual logic used in the U.S. version, now calibrated to Pakistan’s macro environment.
• The Pakistan Inflation Rate YoY (PKIRYY) line color shifts dynamically — clearly showing when inflation is rising above target, cooling, or stabilizing.
• This dual-overlay helps interpret both the cause (inflation) and effect (policy response) within Pakistan’s economic cycle, giving investors a clear macro perspective.

⚠️ Disclaimer
This script is for educational and informational purposes only. It does not provide financial advice or trading signals. Always combine it with your own research, proper risk management, and professional judgment.