State Bank of Pakistan (SBP) is scheduled to hold its Monetary Policy Committee (MPC) meeting on Mar 10, 2025.
In a poll conducted by Topline Securities, market participants have varying views, wherein 38% of them view rates as unchanged. While 62% are expecting a rate cut of at least 50bps.
Out of this 62%, 37% expect a rate cut of 100bps, 20% expect a rate cut of 50bps, and 5% expect a rate cut of 150bps.
In our view, the central bank has the further room of around 100bps cut as we expect FY26 inflation to average between 8-9%, translating into the real rate of 300-400bps with current policy rate of 12%. Historically we have maintained a real rate of 200-300bps.
However, we believe the Central Bank’s MPS committee will observe status quo in the upcoming meeting owing to the following reason;
IMF review is scheduled for the first week of March, wherein new revenue targets and new budgetary taxation measures will get more attention, in our view. This may affect inflation outlook for FY26.
Higher import numbers of the last 2 months (Dec and Jan, Average US$5.2bn) along with PKR depreciation of 1.6% since Nov 2024 in Kerb market may pause the further interest rate easing onthe prudent basis to further analyse the impact of previous easing.
Real Effective Exchange Rate (REER) has reached 104.05 in Jan 2025 which signals a relatively overvalued status of PKR compared to other trading/regional peers.
We maintain our interest rate target of 11% for Dec 2025.
6M KIBOR and 6 Months T-Bills are up 21-24 bps from last MPC meeting:* The secondary market indicators also show interest rate cut cycle is likely to bottom out soon as 6 months KIBOR and T-Bills have increased by 21-24bps since last MPC meeting with rate/yield of 11.85%/11.73%.
95% believe central bank has further room of 0-200bps in interest rate cut by Jun 2025*
Topline Research conducted a poll of key market participants on expectations 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%, suggesting further cut of 0-200bps in next 4 months (or in next 3 meetings).
On the Inflation side, 65% of the respondents believe the FY25 average would be 6-8% and 22% expected inflation average to fall below 6%. We maintain our inflation target of 6-7% for FY25. During FY26 we expect inflation to average around 8-9%.
Central bank has also revised down its inflation projections for FY25 in the last MPS meeting in range of 5-7%.
On currency side, 55% participants believe PKR/USD will cross Rs282 mark by Jun 2025, while 45% believe exchange rate will be below 282.
