Karachi, March 9, 2025 – The State Bank of Pakistan (SBP) is set to announce its latest monetary policy statement on Monday, March 10, 2025, with market expectations high regarding potential adjustments to the benchmark policy rate. This decision comes in the wake of a decade-low inflation rate, which has provided the central bank with the flexibility to consider further easing of monetary policy.
Since June 2024, the SBP has been actively pursuing an easing cycle, slashing the policy rate by a cumulative 1,000 basis points (bps) over the last six months. This series of rate cuts reduced the policy rate from a record-high 22% in June 2024 to the current level of 12%, with the latest 100 bps reduction occurring in January 2025.
Ahead of the upcoming meeting of the SBP’s Monetary Policy Committee (MPC), market sentiment remains mixed. A survey conducted by Topline Securities reveals differing opinions on the future course of action. While 38% of respondents anticipate that the policy rate will remain unchanged, a majority—62%—expect further rate cuts, with many forecasting a reduction of at least 50 bps. Of those predicting a rate cut, 37% are optimistic about a 100 bps reduction, 20% expect a 50 bps cut, and 5% project a more substantial 150 bps reduction.
Financial analysts at Topline Securities argue that the SBP has room for another 100 bps reduction, especially considering that inflation for fiscal year 2026 (FY26) is expected to average between 8% and 9%. In such a scenario, a policy rate of 12% would imply a real interest rate of 300-400 bps, which is higher than the historical norm of 200-300 bps. This offers the central bank an opportunity to further stimulate economic activity, especially as inflation remains under control.
However, analysts also point to several factors that could influence the SBP’s decision to maintain the current policy rate. One of the most important considerations is the review of Pakistan’s economic performance by the International Monetary Fund (IMF) earlier in March. The IMF’s review is expected to focus on new revenue targets and taxation measures, which could have a significant impact on the inflation outlook for FY26. These factors may prompt the MPC to take a more cautious approach.
Additionally, recent trends in Pakistan’s import volumes could play a role in the central bank’s decision. Over the past two months, imports have averaged $5.2 billion in December 2024 and January 2025, indicating an increase in demand for foreign goods. Coupled with a 1.6% depreciation of the Pakistani Rupee in the kerb market since November 2024, these developments may prompt the SBP to pause any further rate cuts to better assess the cumulative effects of previous monetary policy adjustments.
Moreover, the Real Effective Exchange Rate (REER) reached 104.05 in January 2025, signaling that the Pakistani Rupee may be relatively overvalued compared to regional peers. This could influence the central bank’s decision to hold off on further rate cuts, as maintaining the value of the currency becomes a crucial concern in the current economic environment.
As the SBP prepares to unveil its decision, all eyes will be on the central bank’s next move. Financial markets, businesses, and economic stakeholders are keenly awaiting signals on the future trajectory of Pakistan’s monetary policy, particularly as the country navigates through an era of low inflation, shifting global economic conditions, and evolving domestic challenges. The outcome of the MPC meeting will undoubtedly have far-reaching implications for the country’s financial markets and economic stability.