KARACHI – Pakistan may be on verge of dramatic monetary shift as State Bank of Pakistan (SBP) is widely expected to cut its key policy rate by 50 basis points at its Monetary Policy Committee meeting on January 26.
A poll by wire agency said slight cut is expected amid easing inflation, rising foreign exchange reserves, and a stabilizing rupee as key factors behind the anticipated move, though risks linger.
As some experts hinted at 50 bps cut, others predict more aggressive 75 bps reduction, and one expects rates to remain unchanged. The median forecast points to 50bps drop, marking continuation of SBP’s retreat from its record 22% policy rate peak in 2023. Since mid-2024, cumulative rate cuts have totaled a staggering 1,150 basis points.
Supporters of 50 bps reduction highlight moderating inflation, stronger external buffers, and an improving balance of payments, while cautioning that persistent core inflation and geopolitical tensions could complicate matters.
Waqas Ghani, Head of Equity Research at JS Global Capital, said the central bank now has room to boost growth despite elevated non-food inflation.
Meanwhile, those advocating for 75 bps cut argue that Pakistan’s macroeconomic conditions are ripe for decisive easing. Pakistan is nearing a single-digit policy rate, pointing to stable reserves, growing momentum in the economy, and inflation below the SBP’s medium-term target. A 50 bps cut would bring the policy rate down to 10.5%.
Fresh data shows inflation slowed to 5.6% year-on-year, with monthly prices falling due to lower perishable food costs, though non-food inflation remains stubbornly high. The central bank confirmed that inflation stayed within its 5–7% target from July to November, but warned that core inflation remains sticky and headline inflation could spike toward the fiscal year-end due to base effects.
