SBP likely to cut policy rate by 50bps as inflation slows 

ISLAMABAD: The State Bank of Pakistan (SBP) is widely expected to lower its key policy rate by 50 basis points in the upcoming Monetary Policy Committee (MPC) meeting on July 30 — the first such meeting of the new fiscal year.

Brokerage firms, including Topline Securities and Ismail Iqbal Securities, believe the central bank has room to begin easing its monetary stance, as inflation continues to show a downward trend. A 50bps cut would bring the policy rate down from the current 11 per cent, which has remained unchanged since the last MPC meeting in June.

Topline noted that inflation is expected to average between 5 to 7 per cent in FY2025–26. This would result in a real interest rate of 400 to 600 basis points, much higher than the historical range of 200 to 300 basis points — giving the central bank some space to reduce rates.

The brokerage also said that a majority of market participants now expect a rate cut, with 56 per cent of those surveyed forecasting a reduction of 50 to 100bps. In the previous survey, only 44 per cent expected any cut, while a larger number were betting on no change.

Ismail Iqbal Securities echoed this sentiment, saying inflation has cooled significantly, both in headline and core terms. With the impact of previous price hikes now fading and the rupee showing more stability, the case for a moderate rate cut has strengthened.

“Real interest rates remain comfortably positive,” IISL stated, adding that Pakistan’s external account has become more manageable. However, it also pointed out that risks tied to external financing still exist and called for continued fiscal discipline.

Analysts also see interest rates possibly bottoming out at 10 per cent by the end of 2025 if inflation remains under control and macroeconomic indicators continue to improve.

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