- The SBP has cut interest rates four times in a row since June.
- The CPI for November stood at 4.9%, well below the general market consensus.
- 71% of survey participants expect a minimum rate cut of 200 basis points by the SBP.
The State Bank of Pakistan (SBP) is expected to further cut its policy interest rate at its policy meeting expected to take place later this month in the wake of falling inflation. News reported citing experts.
Most analysts and surveys by brokerages expect the SBP’s Monetary Policy Committee (MPC) to cut the policy rate by 200 basis points (bps) at its December 16 meeting.
The SBP lowered its policy rate by 250 basis points to 15% in November. The SBP has cut interest rates four times in a row since June, for a total of 700 basis points.
The consumer price index (CPI) for November stood at 4.9%, well below the general market consensus.
“This figure places inflation still below the SBP’s 5-7% target range. While CPI inflation is expected to remain in single digits for months to come, the current policy rate of 15% leaves significant room for rate cuts at upcoming monetary policy meetings,” Chase Securities said in a note Tuesday.
According to a survey by Topline Securities, 71% of participants expect the central bank to announce a minimum interest rate cut of 200 basis points.
“Of these 71%, 63% expect interest rates to fall by 200 basis points, 30% expect interest rates to fall by 250 basis points, and 7.0% expect interest rates to fall by more than 250 basis points. basis points.
Participants expect a rate cut due to high real rates, which are elevated as November’s monthly inflation touched a 78-month low of 4.9%, Topline Securities said in a note.
The significant decline in year-on-year inflation in recent months is explained by faster food disinflation and negative adjustments in electricity prices.
“We also believe the SBP will announce a 200 basis point rate cut, bringing the total reduction to 900 basis points,” he said. “After this 200 basis point rate cut, real interest rates will remain at 810 basis points, which is still higher than Pakistan’s historical level by an average of 200 to 300 basis points,” adds- he.
However, based on average inflation of 7-8% in FY25 and 8.5-9.5% in FY26, real rates after this 200 basis point reduction (policy rate of 13%) would be 400 to 550 basis points, he added.
“Based on the above, we maintain our interest rate target of 11-12% for December 2025.”
“Sufficient real rates required to cope with any external or fiscal shock: in order to absorb any mini-fiscal impact and external shock, we believe that the central bank will continue to maintain a positive real rate in the range of 300 to 400 points basic in the medium term. futures on forward-looking inflation,” he said.
According to the report, driven by falling inflation expectations, the six-month Karachi Interbank Offered Rate and treasury bill rate are down by 74-81 basis points since the last monetary policy meeting on November 4 and are currently hovering at 12.59% and 12.16%, respectively.