The State Bank of Pakistan (SBP) is widely expected to reduce its key policy rate by 50 basis points at its upcoming monetary policy meeting, according to a Reuters poll, as easing inflation, improving foreign exchange reserves and a stabilising rupee strengthen the case for continued monetary easing.
The SBP’s Monetary Policy Committee is scheduled to meet on January 26, where it will review the country’s macroeconomic conditions and decide the future course of interest rates. Of the 10 analysts surveyed in the Reuters poll, seven forecast a 50 basis point rate cut, two expect a deeper reduction of 75 basis points, while one analyst anticipates no change in rates.
The median forecast from the survey points to a 50 basis point cut, signalling growing confidence that the central bank will continue its shift away from the aggressive tightening stance adopted over the past two years. In December, the SBP surprised markets by cutting rates after maintaining a pause for four consecutive policy meetings.
If implemented, a 50 basis point cut would bring Pakistan’s policy rate down to 10.5 per cent. This would further cement a reversal from the peak of the tightening cycle, when interest rates reached a record high of 22 per cent in 2023. Since mid-2024, cumulative rate cuts have totalled around 1,150 basis points, reflecting a significant easing of monetary conditions.
Analysts supporting a 50 basis point reduction cited moderating inflation, an improvement in Pakistan’s external account and a gradual buildup in foreign exchange reserves. They also highlighted a relatively stable rupee as a factor giving the SBP additional room to support economic growth. However, several economists cautioned that easing should remain measured due to persistent core inflation and external uncertainties.
“The inflation outlook has eased marginally and external buffers have strengthened, giving the SBP room to support growth,” said Waqas Ghani, Head of Equity Research at JS Global Capital. He added that inflation expectations appear anchored, even though non-food inflation remains elevated, suggesting the central bank must balance growth support with price stability.
A smaller group of analysts believes the macroeconomic environment now justifies a more aggressive rate cut of 75 basis points. They argue that improving growth momentum, stable foreign exchange reserves and inflation running below the central bank’s medium-term target create space for faster easing.
“Pakistan appears on the verge of returning to a single-digit policy rate,” said Sana Tawfik, Head of Research at Arif Habib Limited. She pointed to steady reserves, easing price pressures and improving economic indicators as signs that monetary policy could move more decisively to stimulate investment and consumption.
Despite growing optimism, some analysts remain cautious. Concerns over geopolitical uncertainty, particularly its potential impact on global fuel prices, have led a minority to advocate a slower pace of easing. Fawad Basir, Head of Research at KTrade, warned that external shocks could quickly reverse recent gains in inflation and the balance of payments, warranting a careful approach.
AKD Securities took a more conservative view, expecting the SBP to hold rates unchanged until July, citing lingering risks to inflation and the need to preserve macroeconomic stability under Pakistan’s ongoing reform programme.
The survey follows recent inflation data showing a slowdown to 5.6 per cent year-on-year in December. On a monthly basis, prices declined due to lower perishable food costs, offering relief to consumers. However, non-food inflation remains elevated, reflecting continued pressure from services, energy and administered prices.
The SBP has previously stated that inflation remained within its target range of 5 to 7 per cent during July to November, but it has also warned that core inflation remains sticky. The central bank has cautioned that headline inflation could temporarily rise toward the end of the fiscal year due to base effects.
Meanwhile, the International Monetary Fund has urged caution, warning against premature monetary easing under Pakistan’s $7 billion loan programme. The IMF has emphasised the importance of maintaining macroeconomic discipline to ensure long-term stability and sustain recent gains.
As the policy meeting approaches, markets are closely watching the SBP’s decision for signals on the pace and direction of monetary easing in 2025, with implications for growth, investment and financial markets across Pakistan.
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