KARACHI: Pakistan’s central bank is widely expected to cut its key policy rate by 50 basis points at its upcoming monetary policy meeting, according to a Reuters poll, as easing inflation, stronger foreign exchange buffers and a stabilising rupee strengthen the case for further monetary easing. The outlook marks a continuation of the State Bank of Pakistan’s shift away from its previously aggressive tightening stance, even as analysts caution that risks have not fully receded.
Of the 10 analysts surveyed by Reuters, seven expect the SBP to lower the policy rate by 50 basis points. Two respondents anticipate a deeper cut of 75 basis points, while one analyst expects the central bank to keep rates unchanged. The poll follows a surprise rate cut in December, which ended a four-meeting pause and signalled a clearer pivot toward supporting economic activity.
The median forecast of a 50 basis point reduction would further cement the change in policy direction after interest rates peaked at a record 22% in 2023. Since mid-2024, the SBP has delivered cumulative cuts of 1,150 basis points, reflecting a gradual recalibration as inflationary pressures subside and macroeconomic stability improves.
Analysts favouring a 50 basis point cut pointed to moderating inflation, an improved balance of payments outlook and higher foreign exchange reserves as key drivers behind their expectations. At the same time, they stressed the need for caution due to persistent core inflation and ongoing geopolitical uncertainties that could affect energy prices and external accounts.
“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 remain relatively anchored, although non-food inflation continues to run at elevated levels.
If implemented, a 50 basis point cut would bring Pakistan’s policy rate down to 10.5%, moving the country closer to single-digit interest rates for the first time in several years. Some analysts believe this milestone could be reached sooner rather than later if current trends hold.
Those expecting a larger, 75 basis point cut argue that macroeconomic conditions are now aligned for more decisive easing. Sana Tawfik, head of research at Arif Habib Limited, said Pakistan appears to be on the verge of returning to a single-digit policy rate, citing improving growth momentum, stable foreign exchange reserves and inflation running below the central bank’s medium-term target.
However, a more cautious camp remains wary of moving too quickly. Fawad Basir, head of research at KTrade, highlighted geopolitical uncertainty and its potential impact on global fuel prices as reasons for a measured pace of easing. Meanwhile, AKD Securities expects the SBP to hold rates steady until July, reflecting concerns over inflation volatility and external shocks.
Recent inflation data has added nuance to the policy debate. Headline inflation slowed to 5.6% year-on-year in December, with prices declining on a monthly basis due largely to lower perishable food costs. Despite this improvement, non-food inflation remains elevated, underscoring structural price pressures that the central bank continues to monitor closely.
The SBP has previously stated that inflation remained within its 5% to 7% target range during July to November, but it has also warned that core inflation remains sticky. The central bank has cautioned that headline inflation could rise temporarily toward the end of the fiscal year due to base effects, complicating the near-term outlook.
Adding another layer of caution, the International Monetary Fund has warned against premature monetary easing under Pakistan’s ongoing $7 billion loan programme. The IMF has consistently stressed the importance of maintaining macroeconomic discipline, particularly in the face of external vulnerabilities and fiscal pressures.
As the monetary policy committee meeting approaches, markets are closely watching how the SBP balances the need to support growth with the imperative to safeguard price stability. While a 50 basis point cut appears to be the most likely outcome, the decision will signal how confident policymakers are that Pakistan’s economic recovery can withstand lower interest rates without reigniting inflationary risks.
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