Pakistan Economy: 56% See No Policy Change; Outlook Steady

ISLAMABAD: State Bank of Pakistan (SBP) is scheduled to hold its Monetary Policy Committee (MPC) meeting on May 05, 2025.

In a Poll conducted by Topline Securities, 56% of the market participant expect a status quo in upcoming monetary policy meeting compared to 31% in last poll. While 44% are expecting a rate cut of at-least 50bps.

Out of total 44% rate cut participants, 19% are expecting 50bps cut, and 25% are expecting 100bps cut.

In our view, central bank has the further room of around 100bps cut as we expect FY26 inflation to avg. between 6-7%, translating into real rate of 400-500bps (Policy Rate: 11%), higher than historical real rate of 200-300bps. However, we expect status quo in upcoming monetary policy based on following reasons.

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International crude oil prices have rebounded to US$68-70/barrel amidst rising tensions in middle east region and expected US China deal. This warrants a cautious approach from policy makers, in our view, as oil prices movement has remained major driver of inflation in past.

Some of the major notifications are also expected before start of next fiscal year i.e. gas price notification, and electricity price notification, among others. The inflationary impact of these measures is yet to assessed and absorbed, in our view. That said, we believe, Central Bank’s will observe status quo in upcoming meeting.

Minutes of the last monetary policy meeting: In last MPC meeting of May 05, 2025, out of 9 members, 8 voted for 100bps cut.

6M KIBOR and 6 Months T-Bills are up 88-99 bps from last MPC meeting: Amidst decline in policy rate by 100bps in last MPS, the yields of KIBOR and Tbills are lower by 88-99bps compared to last MPS. Currently 6M KIBOR and 6M Tbills is priced at 11.09% and 10.95%, respectively.

Topline Research conducted a poll of key market participants on expectations over policy rate, average inflation, and PKR USD parity for FY26/Dec 2025.

Policy Rate: On question related to interest rate target for Dec 2025, 42% participant believe interest rate will remain in range of 8-10% vs. 37% earlier. While 58% believe interest rate will remain in over 10% by Dec 2025 vs. 63% earlier.

We expect interest rate to fall to and bottom out at 10% by Dec 2025.

Inflation: On Inflation side, 69% of the respondents believe that inflation will remain in range of 6-8%, 20% are expecting between 8-10%, while 11% are expecting below 6%.

We expect Pakistan Inflation to average between 6-7% for FY26. Similarly, Government has set target of 7.5% for the same year and IMF expects 7.7% average inflation for FY26.

Exchange Rate: On currency side, 36% participants are expecting currency to close above Rs290/USD by Dec 2025 compared to 26% earlier. While 64% are expecting exchange rate in between Rs280-290.

We expect currency to clock in at Rs288-292 by Dec 2025 and Rs298-302 by Jun 2026.