Karachi, December 3, 2024 – Market participants are gearing up for a substantial monetary policy adjustment, as a poll by Topline Securities Limited suggests a majority expects a 200 basis points (bps) cut in the policy rate during the upcoming Monetary Policy Committee (MPC) meeting, scheduled for December 16, 2024.
According to the survey results, 71% of respondents anticipate a minimum 200bps cut, with 63% predicting exactly 200bps, 30% expecting 250bps, and 7% foreseeing an even deeper cut exceeding 250bps. Meanwhile, 29% of respondents foresee a more moderate cut ranging from 50-150bps, with 69% of this subgroup predicting a 150bps reduction.
The anticipation of rate cuts aligns with current economic indicators, notably high real interest rates of 1010bps in November 2024, well above the historic average of 200-300bps. This comes despite cumulative cuts of 700bps across four consecutive MPC meetings since June 2024. The elevated real rates stem from a sharp decline in inflation, which touched a 78-month low of 4.9% in November, driven by food price disinflation and negative fuel cost adjustments (FCA).
Analysts project a 200bps cut, bringing the total reduction during this easing cycle to 900bps. Even after this adjustment, real interest rates are expected to remain robust at 810bps, exceeding historical norms. Forward-looking estimates suggest inflation will average 7-8% for FY25 and 8.5-9.5% for FY26, implying real rates will stabilize between 400-550bps, maintaining a cushion against external and fiscal shocks.
The central bank’s commitment to positive real rates—forecasted at 300-400bps in the medium term—underscores the need to accommodate potential mini-budgets or external economic shocks. Reflecting declining inflation expectations, 6M KIBOR and 6-month Treasury bill rates have already declined by 74-81bps since the previous MPC meeting, now hovering at 12.59% and 12.16%, respectively.
Survey findings also reveal growing confidence in lower inflation trajectories. 59% of participants now expect inflation to stay below 8% in FY25, up from 28% previously, citing lower food and energy prices. Additionally, 70% anticipate interest rates will dip below 12% by June 2025, a significant increase from 38% in prior surveys.
With expectations firmly set, the market eagerly awaits SBP’s decision, which will shape the monetary landscape for FY25.