ISLAMABAD, March 08: With real interest rates already above 10%, a rate cut isn’t just expected—it’s almost inevitable.
Looking ahead, inflation is projected to average 3.75% by June 2025 and 4.9% by December 2025, well within SBP’s 5-7% target range.
However, core inflation is still hovering around 8%, which the central bank will closely monitor.
Oil Prices on a Downward Trend
Global energy prices continue to decline. Inflationary pressures seem to be easing.
Brent crude has dropped to $69.30 per barrel, a three-year low, while coal prices have fallen 16%, the lowest since the COVID-19 crash.
US Economy in Turmoil
The long-running bull market in US equities has finally come to a halt. The S&P 500 has fallen below its 200-day moving average, signaling a potential economic slowdown.
A recession appears to be on the horizon. A weakening dollar and falling oil prices are bad news for Gulf liquidity.
Meanwhile, Trump-era policies are putting global trade, NATO, climate policy, and overall economic stability at risk.
The US dollar has lost its dominance—EUR at 1.0861 and GBP at 1.2911 are gaining strength. Weak jobs data confirm what smart investors already knew—it’s time to reposition portfolios.
Why is the Market Expecting Only a 0-50bps Cut?
Recent auction and trade flows suggest that traders are preparing for either no rate cut or a very small one. Their reasoning includes:
SBP has already cut rates by 1,000bps in the last eight months. Many analysts believe the bank will pause to assess the impact before making further moves.
Current economic stability lacks real reforms. There has been no significant tax base expansion, revenue improvement, or privatization of loss-making entities—all crucial for long-term sustainability.
An ongoing IMF review is keeping policymakers cautious.
Declining foreign exchange reserves and a current account deficit require high interest rates to keep the rupee attractive to investors.
What is Possible?
While these concerns are valid, SBP must balance economic expectations with business confidence. If the central bank halts rate cuts now, yields could rise by 25-40bps, counteracting the positive momentum.
Final Call: A 100bps rate cut is expected. 58% of Tresmark poll participants also predict this move.
