KARACHI: A large majority of market participants expect the State Bank of Pakistan (SBP) to cut interest rates at its first Monetary Policy Committee (MPC) meeting of 2026, according to a Monetary Policy Survey conducted by Topline Pakistan Research, reflecting growing confidence in an easing cycle amid moderating inflation and stable external indicators.
The survey indicates that 80 percent of respondents anticipate a rate cut when the MPC meets on January 26, 2026. Among those expecting an easing move, 56.4 percent foresee a reduction of 50 basis points, while 15.4 percent expect a deeper cut of 100 basis points. Smaller proportions expect a cut of 25 basis points (5 percent) or 75 basis points (3 percent). Meanwhile, 20 percent of respondents expect the SBP to keep the policy rate unchanged.
These expectations follow the central bank’s surprise 50 basis points rate cut announced on December 15, 2025. During that meeting, six of the nine MPC members voted in favour of easing monetary policy, two supported a larger cut of 100 basis points, and one member opted for no change, signalling a clear tilt toward policy accommodation.
Topline Pakistan Research attributed the shift in market sentiment to several supportive macroeconomic developments. These include lower-than-expected inflation readings over the past two months, stronger remittance inflows that have helped stabilise the external account, and broadly steady PKR/USD parity. Based on these factors, the brokerage house expects the SBP to lower the policy rate by 50 basis points to 10.0 percent at the upcoming MPC meeting.
The research note highlighted that real interest rates, calculated using average inflation for FY26, are currently around 350 basis points, which is significantly higher than the historical average of approximately 200 basis points. While this suggests room for monetary easing, analysts believe the SBP is likely to maintain relatively elevated real rates to support macroeconomic stability and ensure sustainable economic growth.
Market-based indicators are also reinforcing expectations of further easing. Secondary market yields on six-month treasury bills and six-month Karachi Interbank Offered Rate (KIBOR) are currently trading 15 to 41 basis points below the prevailing policy rate of 10.5 percent. In addition, recent Pakistan Investment Bonds auctions for two- and three-year tenors have cleared below the benchmark rate, indicating that investors are already pricing in future rate cuts.
Looking beyond the January MPC meeting, Topline has revised its interest rate outlook for June 2026 downward to 9.5 percent, compared to an earlier forecast of 11 percent. The survey results show that 49 percent of respondents expect the policy rate to be around 10 percent by June 2026, while 46 percent anticipate it will fall below 10 percent. Only 5 percent expect the rate to remain unchanged at 10.5 percent by that time.
On the inflation outlook, 77 percent of survey participants expect average inflation to remain within the 5 to 7 percent range during FY26, while 16 percent see it rising to between 7 and 8 percent. Topline maintained its inflation forecast at 6.5 to 7.5 percent, cautioning that any sustained increase in global oil prices could pose upside risks to the inflation trajectory.
Regarding the exchange rate, 64 percent of respondents expect the Pakistani rupee to trade in the range of Rs280 to Rs285 per dollar by June 2026. Topline Pakistan Research also projects the currency to remain within the same band, supported by stable external inflows and prudent monetary management.
Overall, the survey suggests a broad consensus among market participants that the SBP is likely to continue easing monetary policy in 2026, provided inflation remains contained and external sector conditions stay supportive.
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