Karachi: The State Bank of Pakistan (SBP) is expected to reduce its key interest rate by up to 50 basis points (bps) in its upcoming Monetary Policy Committee (MPC) meeting on Monday, marking its seventh consecutive cut as inflation continues to decline.
Since June 2024, the central bank has slashed the interest rate by a total of 1,000bps from a record-high of 22%. In its last MPC meeting in January, the SBP cut the policy rate by 100bps, bringing it down to 12%.
Pakistan’s headline inflation fell to 1.5% year-on-year in February 2025, down from 2.4% in January, according to the Pakistan Bureau of Statistics (PBS). This marks the lowest inflation reading since September 2015.
“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. He attributed the decline to lower Consumer Price Index (CPI) inflation.
Saad Hanif, Head of Research at Ismail Iqbal Securities, also predicted a rate cut, stating that inflation is expected to remain in single digits in the coming months but could rise after May due to the base effect.
Despite expectations of a rate cut, some analysts believe the SBP may take a cautious approach due to ongoing discussions with the International Monetary Fund (IMF).
“The IMF may push for a higher tax revenue target, which could impact inflation,” said Hanif. The government could be required to raise taxes such as the General Sales Tax (GST) or Petroleum Development Levy (PDL), indirectly affecting price levels.
Brokerage firm Topline Securities suggested that the central bank might maintain the status quo due to concerns over rising imports and currency depreciation. However, analysts at Pakistan Kuwait Investment Company maintained that even if the IMF recommends new measures, their impact on inflation would be limited.
With Pakistan navigating a challenging economic recovery under the $7 billion Extended Fund Facility (EFF) from the IMF, the SBP’s policy decision will be closely watched. The upcoming MPC meeting will determine whether the easing cycle continues or if the central bank adopts a more cautious stance in response to external economic pressures.
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