The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is expected to cut the policy rate by 50 basis points (bps) in its upcoming meeting scheduled for Wednesday, July 30, the first MPC meeting of the fiscal year 2025–26, market analysts noted.
“We expect the central bank to announce a cut of 50bps in the upcoming MPC meeting,” said Topline Securities, in its latest report.
The brokerage house was of the view that the SBP has further room for around a 100bps cut, as it expects inflation in FY26 to hover between 5-7%, translating into a real rate of 400-600bps, which is well above the historical real rate of 200-300bps.
The central bank, in its previous MPC held on June 16, decided to keep the policy rate unchanged at 11%. The decision was in line with market expectations as the majority of market participants were unsure of the rate cut as the federal budget announcement was ahead and Iran-Israel conflict had led to a surge in oil prices, said Topline.
The MPC back then noted that the increase in inflation in May to 3.5% year-on-year (y/y) was in line with its expectation, whereas core inflation declined marginally. “Going forward, inflation is expected to trend up and stabilise in the target range during FY26,” the committee said at the time.
Meanwhile, Topline shared that in its poll, 56% of the market participants expect a 50-100bps cut in the upcoming monetary policy meeting compared to 44% in the last poll. While 37% are expecting no change compared to 56% in the last MPC.
“We, in line with market expectations, also expect interest rates to fall to and bottom out at 10% by December 2025,” said the brokerage house.
Ismail Iqbal Securities Limited (IISL), another brokerage house, also expected a similar rate cut in the upcoming MPC.
“We expect a 50bps rate cut as inflation continues its downward trajectory,” said IISL in its report on Thursday.
The brokerage house noted that both headline and core inflation have moderated significantly, with the base effect largely dissipated and inflation dynamics normalising.
“Additionally, improved currency stability and a more manageable external account further support the case for easing,” it said.
Ismail Iqbal shared that the real interest rates remain firmly positive, providing room for a measured monetary adjustment.
However, it noted that while growth is recovering, some external sector risks linger; thus, sustained fiscal discipline and improved macro fundamentals make a good case for measured cuts.
