Islamabad, Jan 14: The State Bank of Pakistan (SBP) is set to announce its monetary policy on January 27, 2025, with market analysts predicting a potential rate cut. Brokerage firm Topline Securities expects the central bank to reduce the policy rate by 100 basis points (bps), based on a poll of key market participants.
The survey found that 61% of participants anticipate a 100bps cut, while a smaller proportion expects a range of other rate adjustments, from 50bps to 200bps, and a minority sees no change in rates.
The rationale behind the anticipated rate cut lies in the high real interest rates, which are currently hovering at around 950bps for January 2025, significantly above Pakistan’s historic average of 200-300bps.
Despite a total reduction of 900bps in the policy rate since June 2024, inflationary pressures have remained subdued.
Experts expect January 2025 to see a monthly inflation rate of around 3.5%, the lowest in over eight years. This is mainly due to food disinflation and negative electricity price adjustments.
In this context, Topline Securities suggests that the SBP will likely reduce rates by 100bps, marking the sixth consecutive rate cut in this cycle. This move would lower real interest rates to approximately 850bps, still above the long-term average.
PM Shehbaz Guarantees 24-Hour Visas for Foreign Investors
Looking ahead, the firm expects the inflation rate to average between 6.5% and 7.5% for FY25, with real rates after the 100bps cut likely to fall in the range of 300-500bps.
On the inflation front, Topline Securities conducted another survey, revealing that 73% of participants believe the SBP will announce a 100bps cut. While expectations of inflation for FY25 remain largely unchanged, 56% of the participants now predict inflation will stay below 8%, slightly lower than previous projections.
However, recent increases in international oil prices and the expected rise in gas prices under the IMF program guidelines have led to some concerns.
Since January 1, 2025, international oil prices have risen by 8%, from $75 to $81 per barrel.
The SBP Governor revised the inflation target for FY25. It is now expected to range between 7% and 9%, down from the initial forecast of 11.5% to 13.5%.
Moving forward, Topline Securities anticipates that interest rates will range between 10% and 12% by June 2025, with 94% of market participants predicting rates below 12%.
The brokerage firm’s final projection for the interest rate by December 2025 stands at 11-12%, reflecting a cautious but optimistic outlook for Pakistan’s economic recovery.
