Brokerage House Expects Status Quo in Key Interest Rate

The State Bank of Pakistan (SBP) is scheduled to announce its monetary policy on May 05, with brokerage house Topline Securities expecting a status quo. In a poll conducted by Topline, 69 percent of the market participants expect a rate cut of at-least 50bps, while 31 percent believes that central bank will observe status quo. The ratio of participants observing status quo has come down from 38 percent in previous poll to current 31 percent. Out of this 69 percent, 37 percent expect a rate cut of 50bps, 30 percent expect a rate cut of 100bps, and 2 percent expect a rate cut of 150bps. The brokerage house said it believes the central bank has the further room of around 200bps cut till Dec 2025 as it expects FY26 inflation to average between 6-7 percent, translating into real rate of 500-600bps, higher than historical real rate of 200-300bps. Furthermore, falling oil prices, falling dollar index, and higher remittances also makes strong case of rate cut. However, the sustainability in prices/index of former two (oil and dollar) is yet to be seen. However, the brokerage house believes SBP will observe status quo in upcoming meeting owning to following reason; The expected foreign inflows for 2HFY25 are not materialized yet and are expected to be received once first review of IMF is approved by Board (before Jun 2025). Furthermore, IMF has also mentioned in its press release of staff level agreement that, Pakistan remains committed to maintaining sufficiently tight monetary policy to keep inflation low. The US tariff risks are still looming, and we expect central bank to maintain status quo till any clarity on this global development. The Budget FY26 and adjustment in gas prices are around the corner. The revenue measures and their inflationary impact is not known yet. The MPC unanimously decided to maintain the policy rate at 12 percent in last meeting held on Mar 10, 2025. The secondary market indicators also shows pause in interest rate cut cycle as 6 months KIBOR and T-bill have increased by 31-35bps since last MPC meeting with rate/yield of 12.09 percent/11.92 percent. Topline Research also conducted a poll of key market participants on expectations over policy rate, and average inflation for FY25. On question related to interest rate target for Jun 2025, 95 percent participant believe interest rate will remain in range of 10-12 percent, same as it was in previous poll, suggesting further cut of 0-200bps in next 2 months (or in next 2 meetings). While when it comes to interest rate by Dec 2025, 37 percent believe will remain in range of 8-10 percent, and 49 percent in range of 10-11 percent and 12 percent in range of 11-12 percent. On Inflation side, 53 percent of the respondents believe, the FY25 average would be below 6 percent vs. 22 percent participants in previous poll. We also expect inflation to average 4.5-5.5 percent in FY25. Fitch in its recent rating upgrade note also highlighted Pakistan inflation to average 5 percent for FY25 before picking up to 8 percent in FY26.