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.
The survey indicates that 80% of respondents anticipate a rate reduction when the MPC meets on January 26, 2026. Of those expecting a cut, 56.4% foresee a 50-basis-point reduction, 15.4% expect a 100bps cut, 5% predict a 25bps move, and 3% anticipate a 75bps reduction. The remaining 20% expect no change in the policy rate.
These expectations follow the SBP’s surprise 50bps rate cut on December 15, 2025, when six of nine MPC members voted for easing, two supported a larger 100bps cut, and one opted for no change. Topline Research attributed the shift in market sentiment to lower-than-expected inflation readings over the past two months, stronger remittance inflows supporting the external account, and broadly stable PKR/USD parity.
Based on these factors, Topline expects the SBP to reduce the policy rate by 50bps to 10% at the upcoming meeting. The research firm noted that real interest rates, based on average FY26 inflation, are currently around 350bps, well above the historical average of 200bps. Analysts expect the central bank to maintain relatively elevated real rates to support sustainable economic growth.
Market signals also indicate monetary easing. Secondary market yields on six-month treasury bills and six-month KIBOR are trading 15–41bps below the current policy rate of 10.5%, while recent Pakistan Investment Bonds auctions for two- and three-year tenors cleared below the benchmark rate, reflecting investor expectations of further cuts.
Looking beyond the January meeting, Topline revised its interest rate forecast for June 2026 to 9.5%, down from an earlier estimate of 11%. In its survey, 49% of respondents expect the policy rate to be around 10% by June 2026, 46% see it falling below 10%, and 5% expect it to remain at 10.5%.
Regarding inflation, 77% of participants expect average FY26 inflation to remain in the 5–7% range, while 16% see it at 7–8%. Topline maintained its own inflation forecast at 6.5–7.5%, noting that sustained increases in global oil prices could pose upside risks.
For the exchange rate, 64% of respondents expect the rupee to trade between Rs280–285 per dollar by June 2026, consistent with Topline’s projections. The survey results indicate that market participants are pricing in monetary policy easing while monitoring inflation and currency stability in the coming months.
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