Karachi, March 2, 2025 – The State Bank of Pakistan (SBP) is expected to lower its benchmark interest rate by 50 basis points in the upcoming Monetary Policy Committee (MPC) meeting, according to market expectations.
The SBP has scheduled the Monetary Policy Committee meeting for March 10, 2025, where the decision on the rate cut will be made.
A recent poll conducted by Topline Securities indicates mixed views among market participants regarding the SBP’s stance on interest rates. According to the poll results, 38% of respondents expect the rate to remain unchanged, while 62% anticipate a rate cut of at least 50 basis points. Of this 62%, 37% foresee a 100-basis-point rate reduction, 20% expect a 50-basis-point cut, and 5% predict a more aggressive 150-basis-point rate cut.
Analysts at Topline Securities believe the SBP has room for a total rate cut of approximately 100 basis points, as they expect inflation for FY26 to average between 8-9%, leading to a real rate of 300-400 basis points with the current policy rate of 12%. Historically, Pakistan has maintained a real rate of 200-300 basis points.
However, analysts caution that the SBP may maintain a status quo in the upcoming meeting due to several key factors:
• The ongoing International Monetary Fund (IMF) review in the first week of March, which will focus on new revenue targets and budgetary taxation measures. These fiscal decisions could impact the inflation outlook for FY26.
• A surge in imports over the last two months (December and January, averaging $5.2 billion), coupled with a 1.6% depreciation of the PKR since November 2024 in the kerb market, may prompt the SBP to pause further interest rate reductions to assess the effects of previous monetary easing.
• The Real Effective Exchange Rate (REER) reaching 104.05 in January 2025 signals a relatively overvalued PKR compared to regional trading peers.
Topline Securities projects an interest rate target of 11% by December 2025. Secondary market indicators also suggest that the rate cut cycle is nearing its bottom, as the six-month KIBOR and Treasury bill rates have risen by 21-24 basis points since the last MPC meeting.
A poll by Topline Research found that 95% of participants believe the SBP has room for a further rate cut of 0-200 basis points by June 2025. Additionally, 65% of respondents expect FY25 inflation to average between 6-8%, while 22% predict it will fall below 6%. The SBP has also revised its inflation projections for FY25 downward to a range of 5-7% in the last MPC meeting.
Regarding currency expectations, 55% of market participants anticipate the PKR/USD exchange rate will surpass Rs282 by June 2025, while 45% believe it will remain below this threshold.