Anticipated Policy Rate Reduction by the State Bank of Pakistan

Market analysts anticipate that the Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) will likely implement a 50 basis points (bps) decrease in the policy rate during its forthcoming meeting on Wednesday, July 30. This will be the initial MPC session for the fiscal year 2025–26.

In their recent assessment, Topline Securities stated, “We foresee the central bank declaring a 50bps reduction in the approaching MPC meeting.”

The brokerage firm suggests that the SBP possesses scope for a further reduction of approximately 100bps. Their projection is based on an anticipated inflation rate of 5-7% for FY26, which would result in a real rate of 400-600bps. This level is substantially higher than the historical real rate of 200-300bps.

During its previous MPC meeting on June 16, the central bank opted to maintain the policy rate at 11%. Topline noted that this decision aligned with market expectations, as most participants were uncertain about a rate cut, given the impending federal budget announcement and the rise in oil prices due to the Iran-Israel conflict.

The MPC acknowledged that the increase in inflation to 3.5% year-on-year (y/y) in May was consistent with their projections, while core inflation experienced a slight decline. The committee indicated that, looking ahead, inflation is expected to increase and then stabilize within the target range throughout FY26.

Topline’s survey revealed that 56% of market participants anticipate a reduction of 50-100bps during the next monetary policy meeting, compared to 44% in the previous poll. Conversely, 37% foresee no change, down from 56% in the last MPC.

The brokerage house also stated, “In accordance with market expectations, we anticipate interest rates to decrease and reach a bottom of 10% by December 2025.”

Ismail Iqbal Securities Limited (IISL), another brokerage firm, also projects a similar rate cut during the upcoming MPC meeting.

IISL stated in their report on Thursday, “We anticipate a 50bps rate cut as inflation continues its downward trend.”

The brokerage house highlighted that both headline and core inflation have decreased considerably, with the base effect largely diminished and inflation dynamics returning to normal.

They added, “Furthermore, enhanced currency stability and a more manageable external account further bolster the argument for easing.”

Ismail Iqbal emphasized that real interest rates remain strongly positive, providing leeway for a measured monetary adjustment.

However, they pointed out that while growth is recovering, some risks within the external sector remain. Therefore, sustained fiscal discipline and improved macro fundamentals would support prudent reductions.