Some analysts expect SBP to cut policy rate by up to 200 bps

WEB DESK: The State Bank of Pakistan (SBP) is widely expected to lower its key interest rate in its upcoming policy meeting on Thursday, following a drop in inflation to single digits in August – a milestone not seen in nearly three years, according to analysts.

This potential rate cut would build on two previous reductions in recent months: a 150 basis point (bps) cut in June and a 100 bps cut in July. These cuts have brought the policy rate down from a record high of 22 per cent to its current level of 19.5 per cent.

In a poll of 14 analysts, all predicted a further cut in interest rates. Ten of the analysts expected a 150 bps reduction, while two forecast a 100 bps cut and another two anticipated a more significant cut of 200 bps.

The July rate cut followed a staff-level agreement with the International Monetary Fund (IMF) and the announcement of a new state budget, which aimed at raising revenue through ambitious tax targets.

SBP Governor Jameel Ahmed, in his first interview since taking office in 2022, said in August that the recent rate cuts had achieved their intended goals. Inflation had slowed, and the current account remained stable despite the reductions in interest rates.

Pakistan’s annual inflation rate eased to 9.6 per cent in August, marking the first single-digit figure in nearly three years. However, Ahmed stressed that the central bank’s Monetary Policy Committee would assess all factors before making future decisions, noting that rate changes are not predetermined.

Economist Ammar Habib, who predicts a 200 bps cut, pointed out that real interest rates, currently around 10 per cent, are the highest in the last 30 years.

“With commodity prices easing and the government maintaining a cautious fiscal approach, a 200-bps cut seems feasible without significantly affecting foreign exchange expectations,” Habib explained.

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