SBP to Announce Monetary Policy on January 27; Brokerage House Expect 100bps Rate Cut

TheState Bank of Pakistan (SBP)is set to unveil its monetary policy on January 27, with a significant majority of analysts anticipating a rate cut. According to a survey conducted byTopline Securities, 61% of participants predict a 100bps reduction in the policy rate. Topline’s poll revealed diverse expectations among market participants: This expected adjustment comes despite the centralbank having reduced interest ratesby 900bps across five consecutive policy meetings since June 2024. The anticipation of a rate cut stems from declining inflation. Monthly inflation for January 2025 is projected at 3.5%, the lowest in 103 months, driven by food price disinflation and negative electricity price adjustments. This brings the real interest rate to approximately 950bps, significantly higher than Pakistan’s historical average of 200-300bps. Topline expects the SBP to cut the policy rate by 100bps, which would bring the total reduction in the ongoing cycle to 1,000bps. Despite this, real interest rates would still remain elevated at 850bps. Topline projects average inflation for FY25 at 6.5%-7.5% and for FY26 at 8.5%-9.5%. After a potential rate cut to 12%, real interest rates would stabilize between 300bps and 500bps in FY25. The brokerage maintains its policy rate target at 11%-12% for December 2025, suggesting the centralbank may keep real rates positivein the medium term to offset potential inflationary pressures from fuel price adjustments, gas tariff hikes, and any fiscal measures under IMF guidelines. Market indicators, including the 6M KIBOR and Treasury bill rates, have responded to easing inflation expectations. Since the lastmonetary policymeeting on December 16, 2024, these rates have fallen by 23-32bps to hover at 11.87% and 11.65%, respectively. Topline’s survey also revealed that56%of participants now expect inflation to remain below 8% for FY25, compared to 59% in an earlier poll. The slight uptick in inflation expectations is attributed to a recent 8% rise in international oil prices, which climbed from $75 to $81 per barrel since January 1, 2025. In a recent analysts’ meeting, the SBP Governor hinted that the average inflation target for FY25 would likely be revised downward from the previously disclosed range of 11.5%-13.5% to approximately 7%-9%. Topline’s poll indicates a growing consensus for lower interest rates: Topline expects the policy rate to stabilize at 11%-12% by December 2025, reflecting optimism around sustained inflation control and economic stabilization. Source:ProPakistani