Analysts predict a potential reduction in the policy rate during the upcoming Monetary Policy Committee (MPC) meeting, according to their assessments.
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is set to meet on July 30, 2025, and is expected to cut the policy rate by 50 basis points, marking the first MPC meeting of the fiscal year 2025–26.
The anticipated rate cut is primarily due to the moderation of inflation and improved macroeconomic stability. Inflation is projected to be between 5-7% in FY26, which would result in a real interest rate of around 400-600 basis points. This is much higher than the historical real rate range of 200-300 basis points, suggesting there is room to ease monetary policy.
In the previous MPC meeting on June 16, the policy rate was held steady at 11% due to uncertainties such as the federal budget announcement and geopolitical tensions that increased oil prices. However, these factors have since stabilized, and inflation is expected to trend up but stabilize within the target range during FY26, justifying a rate cut.
Market analysts and financial institutions like Topline Securities are anticipating a 50bps cut and believe the SBP may have additional easing space later in the fiscal year. Ismail Iqbal Securities Limited (IISL) shares similar sentiments, emphasizing that sustained fiscal discipline and improved macroeconomic fundamentals make a good case for measured cuts.
IISL also notes that improved currency stability and a more manageable external account support the case for easing. Moreover, the base effect has largely dissipated, and inflation dynamics are normalizing, as per IISL.
The MPC noted in its previous meeting that inflation in May 2025 was in line with expectations, while core inflation declined marginally. Going forward, the MPC expects inflation to trend up and stabilize in the target range during FY26.
In addition, Topline Securities highlights that the federal budget announcement and an increase in oil prices due to the Iran-Israel conflict were factors in the June 16 decision. However, with these factors stabilizing, the MPC is now poised to take a more accommodative stance.
In conclusion, the expected outcome is a 50 basis points reduction in the policy rate, primarily to align the real interest rate with historical norms amid moderating inflation and improved macroeconomic stability, signaling a shift towards looser monetary policy.
The Monetary Policy Committee (MPC) is anticipated to cut the policy rate by 50 basis points in their meeting on July 30, 2025, as a result of the moderation of inflation and improved macroeconomic stability. During FY26, inflation is expected to be between 5-7%, leading to a real interest rate of around 400-600 basis points, much higher than the historical real rate range of 200-300 basis points. This rate cut is justified as inflation is projected to trend up but stabilize within the target range during FY26. Market analysts and financial institutions like Topline Securities and Ismail Iqbal Securities Limited (IISL) anticipate this 50bps cut and emphasize that sustained fiscal discipline and improved macroeconomic fundamentals make a good case for measured cuts. IISL also notes that improved currency stability and a more manageable external account support the case for easing. These anticipated changes suggest a shift towards looser monetary policy, aligning the real interest rate with historical norms amid moderating inflation.
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