Karachi, September 5, 2024 — Analysts at Arif Habib Limited forecast a substantial reduction of 150 basis points in the State Bank of Pakistan’s (SBP) key policy rate, projecting the rate to fall to 18% during the upcoming monetary policy announcement on September 12, 2024.
Sana Tawfik from Arif Habib Limited stated, “We anticipate a 150bps cut, bringing the policy rate down to 18%, a level last observed in February 2023 when it dropped to 17%.” This potential cut would represent the third consecutive rate reduction since the beginning of the interest rate reversal cycle in June 2024.
Several recent macroeconomic improvements bolster the expectation of this rate cut. The most significant factor is the marked decline in inflation. August 2024 saw inflation drop to a single digit of 9.6%, resulting in a real interest rate of 1,000 basis points. This drop in inflation has created leeway for further rate adjustments.
Headline and core inflation rates have also shown a decline. For the first two months of the fiscal year 2025 (2MFY25), the average inflation rate is recorded at 10.4%, a notable decrease from 27.8% during the same period in fiscal year 2024 (FY24).
On the external front, the current account deficit has shown significant improvement. For July 2025, the deficit was reduced to USD 162 million, a dramatic reduction from USD 741 million in the same month last year. This improvement is largely attributed to a 48% year-on-year increase in remittances, contributing to the stability of the Pakistani rupee (PKR) against the US dollar.
Additionally, the Large Scale Manufacturing Index (LSMI) has demonstrated slight improvement. For fiscal year 2024 (FY24), LSMI reported a 0.94% year-on-year increase in production, with positive growth observed in ten sectors, including food, coke and petroleum products, wearing apparel, and pharmaceuticals.
These positive developments in inflation, external accounts, and manufacturing output collectively support the analysts’ expectations of a substantial policy rate cut by the SBP.
