69% Hope 50bps Cut in interest rate
Staff Report
Islamabad: As many as 69 percent Participants in a survey has expected minimum cut of 50bps in interest rate in monetary policy.
State Bank of Pakistan (SBP) has scheduled to conduct a meeting of its Monetary Policy Committee (MPC) on May 05, 2025.
In a Poll conducted by Topline Securities, 69% of the market participant expect a rate cut of at-least 50bps, while 31% believes that central bank will observe status quo. The ratio of participants observing status quo has come down from 38% in previous poll to current 31%.
Out of this 69%, 37% expect a rate cut of 50bps, 30% expect a rate cut of 100bps, and 2% expect a rate cut of 150bps.
In our view, central bank has the further room of around 200bps cut till Dec 2025 as we expect FY26 inflation to avg. between 6-7%, translating into real rate of 500-600bps (Policy Rate: 12%), higher than historical real rate of 200-300bps.
Furthermore, falling oil prices, falling dollar index, and higher remittances also makes strong case of rate cut. However, the sustainability in prices/index of former two (oil and dollar) is yet to be seen.expect 100bps
That said, we believe, Central Bank’s will observe status quo in upcoming meeting owning to following reason;
The expected foreign inflows for 2HFY25 are not materialized yet and are expected to be received once first review of IMF is approved by Board (before Jun 2025). Furthermore, IMF has also mentioned in its press release of staff level agreement that, Pakistan remains committed to maintaining sufficiently tight monetary policy to keep inflation low.
The US tariff risks are still looming, and we expect central bank to maintain status quo till any clarity on this global development.
The Budget FY26 and adjustment in gas prices are around the corner. The revenue measures and their inflationary impact is not known yet.
Minutes of the last monetary policy meeting: The MPC unanimously decided to maintain the policy rate at 12% in last meeting held on Mar 10, 2025.
6M KIBOR and 6 Months T-Bills are up 31-35 bps from last MPC meeting: The secondary market indicators also shows pause in interest rate cut cycle as 6 months KIBOR and T-bill have increased by 31-35bps since last MPC meeting with rate/yield of 12.09%/11.92%.
Topline Research has conducted a poll over policy rate, and average inflation for FY25.
On question related to interest rate target for Jun 2025, 95% participant believe interest rate will remain in range of 10-12%, same as it was in previous poll, suggesting further cut of 0-200bps in next 2 months (or in next 2 meetings).
While interest rate by Dec 2025, 37% believe will remain in range of 8-10%, and 49% in range of 10-11% and 12% in range of 11-12%.
On Inflation side, 53% of the respondents believe, the FY25 average would be below 6% vs. 22% participants in previous poll. We also expect inflation to average 4.5-5.5% in FY25.
Fitch has highlighted inflation to average 5% for FY25 before picking up to 8% in FY26 in its recent rating upgrade note.
On currency side, 60% participant believe PKR/USD will remain in range of Rs280-290, while 26% expect will cross Rs290 and 7% expect will remain below Rs280.
