State Bank to announce key policy rate on May 5

The State Bank of Pakistan (SBP) has announced that the Monetary Policy Committee (MPC) will meet on Monday, May 05, 2025, to decide on the key policy rate. 

The central bank said in a press release that it will issue the Monetary Policy Statement after the MPC meeting on the same day. 

According to Arif Habib Limited, the SBP is expected to announce a 50 basis points (bps) cut in its policy rate to 11.5% during the upcoming monetary policy meeting. This expectation is based on a continued decline in inflation, a strong real interest rate cushion, and ongoing weakness in domestic industrial production.

Headline inflation dropped to 0.7% year-on-year in March 2025, the lowest level in approximately six decades, and is projected to fall further to 0.45% in April. This significant moderation has pushed real interest rates to around 11.3%, creating room for monetary easing while maintaining macroeconomic stability. 

For the 10-month period of FY25 (10MFY25), average headline inflation stands at 4.88%, compared to 26.22% during the same period last year.

Core inflation, however, remains elevated, with non-food, non-energy inflation (NFNE) projected at 7.72% year-on-year in April. The high base effect supporting disinflation is also expected to diminish in the coming months, potentially placing some upward pressure on future inflation readings.

On the external front, Pakistan posted a current account surplus of USD 1.2 billion in March 2025 and a cumulative surplus of $1.86 billion during 9MFY25, largely supported by a 33% year-on-year increase in remittances. Nonetheless, an 11% year-on-year rise in imports during the same period suggests that domestic demand may be gradually recovering, which could introduce new pressures on the external account.

Meanwhile, money market behavior has been mixed, with longer-tenor yields trending lower while short-term yields have moved up slightly, indicating a cautious market outlook ahead of the monetary policy decision.

A recent survey by Arif Habib Limited found that 54.6% of respondents expect the SBP to lower the policy rate, with 18.2% specifically forecasting a 50 bps cut. In contrast, 45.4% anticipate a status quo.

Compared to earlier market assessments, when a Topline Securities survey showed strong expectations for a rate cut but a baseline forecast of no immediate change, current data now presents a clearer case for monetary easing. 

During its last meeting on March 10, the MPC decided to keep the policy rate unchanged at 12%. 

The central bank slashed the policy rate by 100 basis points bringing it down to 12% on January 27, 2025. This was the sixth rate cut since June 2024, bringing the policy rate down by a cumulative 1,000 basis points from the highest rate of 22%.