The Monetary Policy Committee of the State Bank of Pakistan is meeting today and everyone is waiting for a statement from the central bank that the MPC will go for a big cut in the key rate. Later today, the central bank will issue a press release outlining the decision, which all economists, businesses, and investors eagerly await.
This would mark the fourth rate cut since June 2024, as inflation begins to stabilize. Recent economic indicators, including lower inflation, a better current account balance, and higher remittances, have contributed to this positive outlook.
Pakistan’s inflation rate has steadily declined in recent months, reaching 7.2 percent in October. Over the past three years, inflation mostly stayed in double digits, peaking at an alarming 38 percent in May 2023, before easing thanks to measures by policymakers.
The SBP had to raise its policy rate incrementally to combat rising inflation that had built up over the previous period. As recently as August last year, it was as low as 7 percent and has since risen to as high as 22 percent this April. Now that it has shown a degree of ease with the easing inflationary pressures, it lowered the rate once again to 17.5 percent.
According to Topline Securities, a survey among market participants indicates that 85 percent believe the minimum cut would be 200 basis points today, given that single-digit inflation in September stood at 6.9 percent, a strong signal for further rate cuts. Analysts at Topline also added that the SBP would like to keep the real interest rate positive, most likely between 300 to 400 basis points, to cushion the economy against any shock.
Today’s policy decision will also be a litmus test on the overall economic vision of Pakistan, as the central bank tries to balance both its inflation control mission as well as growth aspirations of the economy.
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Haider Shah