By Staff Reporter
KARACHI: Most market participants expect the State Bank of Pakistan (SBP) to lower interest rates at its upcoming meeting, a poll showed, as inflation is projected to remain low and the external account shows stability.
Brokerage Topline Securities poll found that 56% of respondents anticipate a 50-100 basis points (bps) reduction in the policy rate at the next meeting, up from 44% in the previous survey. Meanwhile, 37% expect no change, a drop from 56% in the last Monetary Policy Statement (MPS).
At its last Monetary Policy Committee (MPC) meeting in June, the SBP kept the policy rate steady at 11%. The decision reflected uncertainties over the budget announcement and a surge in oil prices driven by the Iran-Israel conflict, which left the majority of market participants unsure about a rate cut.
The brokerage, however, sees room for monetary easing. “In our view, the central bank has further room of around 100bps cut as we expect FY26 inflation to average between 5-7%, translating into a real rate of 400-600bps, higher than the historical real rate of 200-300bps,” an analyst from the firm said. “We believe the left-over room is quite notional and will be gradual. We expect the central bank to announce a cut of 50bps in the upcoming MPC meeting.”
The firm’s outlook is based on inflation projections averaging 5-7% for FY26, with July inflation expected at 3-3.5%, remaining between 3-5% until January 2026, and rising to 6-8% from February to June 2026.
The Topline Securities poll also gauged expectations for the policy rate, inflation, and the rupee’s value by December 2025. On interest rates, 51% of participants expect the policy rate to fall to 10% by December 2025, while 32% predict a drop to 9%.
The brokerage aligns with the majority, forecasting the rate to bottom out at 10% by year-end.
For inflation, 54% of respondents see it averaging between 6-8% in FY26, while 27% expect 4-6%. Topline Securities projects 5-7%, slightly below the government’s target of 7.5% and the International Monetary Fund’s (IMF) estimate of 7.7%.
On the currency front, 51% of participants expect the rupee to trade between Rs285-290 per U.S. dollar by December 2025, with 15% each predicting ranges of Rs290-295, Rs295-300, and above Rs300. Topline Securities forecasts Rs288-292 by December 2025 and Rs298-302 by June 2026.
Market sentiment leaned toward a rate cut on Wednesday, as Treasury Bill yields fell across tenors. The cut-off yield on the one-month T-bill dropped 39bps to 10.85%, while the three-month paper fell 29bps to 10.71%. The six-month note declined 19bps to 10.71%, and the 12-month paper eased 10bps to 10.7%. The government raised Rs424 billion from the T-bill auction, exceeding its target of Rs200 billion and the maturity amount of Rs361 billion.
Analysts attribute the yield declines to expectations of a rate cut, underpinned by single-digit inflation projections for the current fiscal year, a manageable external current account, steady foreign inflows, and robust remittances.
In a related development, the SBP announced that it will publish a Monetary Policy Report (MPR) twice a year to boost transparency and anchor inflation expectations. The reports will follow the July and January MPC meetings, with the first scheduled within two weeks of the July 30 meeting.
“The MPRs are timed to be released within two weeks of the July and January MPC meetings, where the SBP will update its projections for key macroeconomic indicators.”
The central bank also released its FY26 MPC meeting calendar. The first meeting is set for July 30, with subsequent dates on September 15, October 27, December 15, January 26, March 9, April 27, and June 15. “These efforts are all geared towards enhancing the effectiveness of monetary policy transmission by anchoring inflation expectations, and are part of the SBP’s roadmap towards adopting an inflation targeting regime.”
The SBP has lowered its key interest rate from a peak of 22% to 11% over the past fiscal year, balancing economic growth with inflation control.
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