KARACHI –The State Bank of Pakistan (SBP) is likely to maintain its key policy rate unchanged at a fourth consecutive policy meeting on Tuesday, as analysts predict a forthcoming easing of inflation in the coming months, paving the way for potential rate cuts to stimulate the economy.
Following the approval of a $3 billion loan program by the International Monetary Fund (IMF) in July, aimed at averting a sovereign debt default, Pakistan has been navigating a challenging path to economic recovery under a caretaker government. However, the IMF conditions attached to the loan have complicated efforts to rein in inflation.
In June, Pakistan’s key rate reached a historic high of 22%, remaining unchanged over the past three rate meetings. According to a Reuters poll of 12 analysts, the median estimate suggests no change on Tuesday, with only one analyst advocating for a 100 basis point cut. The prevailing market consensus suggests a gradual easing of rates in the first half of the next year, contingent on the trajectory of inflation.
Data from the Pakistan Bureau of Statistics (PBS) revealed an annual inflation rate of 29.2% in November, a slight uptick from October but notably below the peak of 38% observed in May.
The investors have already factored in a peak in Pakistan’s interest rates, and optimism about the successful completion of the IMF program has positively impacted stock markets and the currency. In the week ending December 8, Pakistan’s benchmark index surpassed 66,000 points, achieving a new all-time high with a 7.3% weekly return, or 4,532 points.
