The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) was expected to cut the key policy rate by 50bps to take it to 11.5% in its upcoming meeting, brokerage house Arif Habib Limited (AHL) said in a report on Monday.
The MPC is scheduled to meet on May 5, 2025.
“The Monetary Policy Committee is set to commence its next meeting on May 5th, 2025 and we expect the SBP to cut the policy rate by 50bps to 11.5% in the upcoming monetary policy,” AHL said.
In the last meeting on March 10, the central bank maintained the policy rate stable at 12%.
“The committee noted that inflation in February 2025 turned out lower than expectation, mainly due to a drop in food and energy prices.
“Notwithstanding this decline, the committee assessed the risks posed by the inherent volatility in these prices to the current declining trend in inflation. At the same time, core inflation is proving to be more persistent at an elevated level and thus uptick in the food and energy prices may lead to increase in inflation,” the MPC said in its statement then.
AHL in its report said given the sustained disinflationary trend and ample real interest rate cushion, there was still room for a measured rate cut to support economic recovery without undermining macroeconomic stability.
“The marked decline in inflation stands as the primary catalyst behind our expectation of a policy rate cut. In Mar’25, headline inflation dropped to a 6-decade low of 0.7%, and is projected to ease further to a historic low of 0.45% in Apr’25.”
For 10MFY25, average headline inflation is estimated at 4.88%, according to the brokerage house, a significant improvement from 26.22% recorded during the same period last year, “largely driven by high base effects and softened food prices”.
However, it said, the high base effect was expected to dissipate in the coming months, potentially placing upward pressure on inflation.
