Pakistan’s central bank is expected to lower its key interest rate by up to 50 basis points (bps) on Monday, analysts said, marking its seventh straight cut as inflation continues to decline.
The central bank has reduced rates by 1,000bps from an all-time high of 22% in June 2024.
In its last Monetary Policy Committee (MPC), in January, the State Bank of Pakistan (SBP) reduced the key policy rate by 100 basis points, taking it down to 12%.
The cut, in line with market expectations, was the sixth successive cut in the key interest rate since June 2024.
A media poll of analysts showed a median expectation of a 50bps rate cut, with only one anticipating no change.
“We see that the central bank has room for a 50-100bps cut going forward. However, in the upcoming MPC, a 50bps cut is more likely,” said Waqas Ghani, Head of Research at JS Global.
Ghani, who also serves as Senior Vice President at JS Global, attributed the decline to low CPI inflation.
SBP’s rate cut cycle nears end, says brokerage house ahead of MPC
Pakistan’s headline inflation clocked in at 1.5% on a year-on-year basis in February 2025, a reading below that of January 2025 when it stood at 2.4%, showed Pakistan Bureau of Statistics (PBS) data on Monday.
The February CPI reading was the lowest since September 2015.
The SBP, in its policy statement in January, had projected inflation to come down further in January before inching up in the subsequent months.
Ghani expects inflation to remain on the low side until May 25, after which it could increase.
“From May onwards, we will see an uptick in the inflation rate and by the end of the calendar year, it is expected to be around 6-8%,” he said.
It is pertinent to mention that inflation and the policy rate, also called interest rate, are closely linked through monetary policy. Central banks adjust the policy rate to control inflation and stabilize the economy.
A similar view was shared by Saad Hanif, Head of Research at Ismail Iqbal Securities.
“Data suggests that the inflation rate is expected to remain in single digits in the coming months. From May onwards, we can see inflation spike up owing to base effect,” he said.
On the policy rate, Hanif noted that the central bank is expected to adopt a cautious stance. “It may cut the policy rate by up to 50bps in the upcoming MPC,” he said.
“Interest rate can decline to 10-10.5% till December, as inflation is expected to be contained,” said Hanif.
However, he cautioned that the IMF may push for a higher tax revenue target, which could impact inflation.
“The IMF may raise its tax revenue target to over Rs15 trillion, which may push the government to take measures such as increasing the GST or PDL, this could have an indirect impact on inflation.”
The South Asian country is currently navigating a challenging economic recovery path and is under a $7 billion Extended Fund Facility (EFF) programme from the International Monetary Fund (IMF).
Analysts at Topline Securities, a brokerage house, believed that the central bank’s MPC would observe the status quo in the upcoming meeting.
The brokerage house in its report attributed the status quo to several factors.
“IMF review is scheduled for the first week of March wherein new revenue targets and new budgetary taxation measures will get more attention, in our view. This may affect inflation outlook for FY26,” it said.
Moreover, higher import figures along with PKR depreciation of 1.6% since November 2024 in the Kerb market may pause the further interest rate easing.
Despite these concerns, Samiullah Tariq, Head of Research at Pakistan Kuwait Investment Company (Private) Limited, was of the view that “even if new measures are recommended by the IMF that too will have a limited impact on inflation”.
Tariq also expected a 50bps rate cut in the upcoming MPC.
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