SBP may cut policy rate by up to 200 basis points

WEB DESK: The State Bank of Pakistan (SBP) is anticipated to slash its key interest rate by 100-200 basis points (bps) next week, following a record seven consecutive policy meetings where the rate was held steady at 22 per cent.

This expectation comes from a Reuters poll of market analysts.

The central bank’s policy committee is scheduled to convene on Monday, June 10th, just days after Pakistan reported its lowest Consumer Price Index (CPI) reading in 30 months, with inflation dropping to 11.8 per cent in May—significantly below most forecasts.

This decision precedes the unveiling of Pakistan’s annual budget and is likely to be a critical factor in shaping the country’s economic landscape for the coming fiscal year.

According to the median estimate in a Reuters survey of 16 analysts, the SBP is expected to reduce rates by 100 bps. The projections within the survey vary, with ten analysts forecasting a 100 bps cut, one predicting a 150 bps reduction, and four anticipating a 200 bps cut.

Pakistan’s economic activity has been sluggish over the past two years, largely due to stringent reforms implemented under an International Monetary Fund (IMF) bailout aimed at stabilising the deteriorating economy.

The country’s GDP growth is projected to be around 2 per cent for the current financial year ending in June, following a contraction in the previous year.

The government has set a target of 3.5 per cent GDP growth for the upcoming fiscal year, banking on a revival in economic activity.

As Pakistan navigates these challenging economic conditions, the forthcoming interest rate decision by the SBP will be closely watched by investors and policymakers alike, as it could signal a new direction for the country’s financial strategy.

Read next: Will SBP cut policy rate next week?