The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) will meet shortly for its second session of the year with most analysts anticipating a cut of 50 basis points (bps).
In its meeting on January 27, the MPC reduced the key policy rate by 100bps to 12%. This was the sixth successive cut since June 2024, when the rate stood at 22%.
Market expectations
Most market experts expect the central bank to continue its monetary easing stance as a declining inflation rate has driven expectations of a seventh-successive cut.
A media poll of analysts showed a median expectation of a 50bps rate cut, with only one analyst 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.
Similarly, Saad Hanif, Head of Research at Ismail Iqbal Securities, noted that the central bank is expected to adopt a cautious stance. “The central bank may cut the policy rate by up to 50bps in the upcoming MPC,” he said.
Arif Habib Limited (AHL), another brokerage house, expects SBP to extend its rate-cutting cycle with another 50bps reduction in the upcoming monetary policy review, which would bring “the policy rate to 11.5%”.
“Given the sharp decline in inflation and stable reserves, a 50bps rate cut seems like a logical step in the upcoming policy meeting,” it said.
On the other hand, analysts at Topline Securities 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, including the IMF review and PKR depreciation.
Previous MPC meeting
At its last meeting, the MPC cut the key interest rate by 100bps, in line with market expectations.
The MPC at the time observed that “a cautious monetary policy stance is needed to ensure price stability, which is essential for sustainable economic growth. In this regard, the MPC assessed that the real policy rate needs to remain adequately positive on a forward-looking basis to stabilize inflation in the target range of 5-7%.”
Since the last MPC meeting, several key economic developments have occurred.
The rupee has depreciated by 0.4%, while petrol prices decreased by 0.2%.
Internationally, oil prices have declined since the last MPC, hovering around $70 per barrel amid improved supply.
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.
In addition, Pakistan’s current account posted a deficit of $420 million in January 2025, a significant increase of 4% when compared with the deficit of $404 million in the same month of the previous year. This was the first deficit after five consecutive months of current account surplus.
Foreign exchange reserves held by the State Bank of Pakistan (SBP) increased by $27 million on a weekly basis, clocking in at $11.25 billion as of February 28, data released on Thursday showed.
Total liquid foreign reserves held by the country stood at $15.87 billion, while net foreign reserves held by commercial banks amounted to $4.62 billion.
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