Market Expects SBP to Cut Key Interest Rate Next Week

The Monetary Policy Committee of the State Bank of Pakistan is scheduled to meet on July 29, 2024, to decide on the first monetary policy for FY2024-25, and there is huge expectation for a second consecutive rate cut. A recent survey of high-net-worth individuals and financial institutions by JS Global reveals robust expectations for a substantial rate reduction. While 47 percent of the market consensus leans towards a 100 basis points cut, 31 percent of respondents anticipate a more aggressive 150 bps move from the current rate of 20.5 percent to 19 percent. Investor sentiment suggests a potential disconnect between rate cuts and corresponding declines in secondary market yields post-MPS. This indicates that the market may have been proactive in pricing in a significant portion of the expected rate reduction, as evidenced by the historically wide yield curve between the 12-month yield at 18.3 percent and the discount rate at 21.5 percent.