Karachi, January 27, 2025 – The State Bank of Pakistan (SBP) is expected to make headlines by announcing a substantial interest rate cut during today’s Monetary Policy Committee (MPC) meeting. Market experts anticipate a rate cut of at least 100 basis points (bps), which would bring the benchmark policy rate down to 12% from the current 13%.
However, speculation remains high, with some market participants predicting a more aggressive move by the SBP, potentially slashing the policy rate by 200 bps to settle at 11%. A recent poll conducted by Topline Securities reflects market expectations, where 61% of respondents foresee a 100 bps rate cut by the SBP.
Breaking down the poll further, 7% of participants anticipate a 50 bps cut, another 7% expect a 150 bps reduction, while 17% believe the SBP might go for a bold 200 bps cut. Interestingly, 2% forecast an even steeper 250 bps cut, and 6% predict no change in the policy rate.
Topline Securities analysts point to several factors supporting the expectation of a rate cut. Real interest rates, which currently stand at approximately 950 bps as of January 2025, are significantly higher than Pakistan’s historical average of 200-300 bps. This comes despite the SBP’s successive 900 bps rate cuts across the last five meetings since June 2024.
The primary driver behind the anticipated move by the SBP is the substantial decline in inflation. January 2025’s inflation rate is projected to clock in at just 3.5%, marking the lowest level in over 103 months. This sharp decline is attributed to food price deflation and negative adjustments in electricity costs through fuel cost adjustments (FCA).
If the SBP proceeds with a 100 bps cut today, it will mark the sixth consecutive rate reduction in the current cycle, bringing the total cumulative cuts to 1,000 bps. Even with this reduction, real interest rates will remain at 850 bps—still significantly higher than the historical norm.
Analysts estimate that with average inflation projected at 6.5-7.5% for FY25 and 8.5-9.5% for FY26, a policy rate of 12% would still leave real interest rates in the range of 300-500 bps, keeping Pakistan’s monetary policy stance relatively tight.
The SBP’s decision today will be pivotal, signaling its approach to balancing inflation control with economic growth.