SBP poised to return policy rate to single digits at MPC

Pakistan’s central bank is widely expected to lower its key policy rate at the upcoming Monetary Policy Committee meeting on January 26, with market watchers saying the move could bring the rate back into single-digit territory.

Arif Habib Limited said a 75 basis point reduction would take the State Bank of Pakistan’s policy rate to around 9.75 percent, a level not seen in years, based on cooling inflation, a broadly stable currency, manageable current account conditions, softer global commodity prices and pick-up in domestic demand and industrial activity.

Last month, the central bank surprised markets with a 50 basis point cut that reduced the policy rate to 10.5 percent, bringing cumulative easing to about 1,150 basis points.

A survey by Topline Securities showed strong market expectations for further easing, with most respondents anticipating a policy rate cut at the upcoming meeting. The brokerage noted that real interest rates remain above historical averages even after recent reductions.

“Out of 80% rate cut participants, 56.4% expect 50bps cut, 15.4% expect 100bps cut, 5% expect 25 bps cut, and 3% expect 75bps cut,” said Topline Securities.

Some analysts say conditions could support a deeper move if inflation and confidence remain favourable, though others urge caution amid persistent core inflation and external risks.