As the State Bank of Pakistan gears up for its Monetary Policy Committee (MPC) meeting on November 4, analysts are predicting a possible interest rate cut of at least 200 basis points.
This forecast is primarily driven by declining inflationary trends, with a recent survey by Topline Securities revealing that 85% of participants expect a minimum reduction of 200 basis points. Among these analysts, 63% anticipate a 200 basis point decrease, while 30% foresee a 250 basis point cut, and just 8% predict a reduction greater than 250 basis points.
The anticipated cuts stem from a notable decline in the inflation rate, which stood at 6.9% in September 2024 and is expected to remain between 6.5% and 7.0% for October. Should the State Bank proceed with the projected 200 basis point cut, it would represent the fourth consecutive reduction in this cycle, totaling a 650 basis point decrease so far.
Even after this potential adjustment, real interest rates would still hover around +860 basis points, significantly above Pakistan’s historical average of 200-300 basis points.
Additionally, the survey indicates a notable shift in expectations for future interest rates, with 87% of respondents now believing that rates will fall between 10% and 14% by June 2025, compared to earlier forecasts suggesting rates would remain between 14% and 18%. Average inflation expectations have also shifted downward, with 81% anticipating inflation to stay below 10%.
Overall, the upcoming MPC meeting is set to be a crucial turning point for Pakistan’s monetary policy, as stakeholders keenly observe the State Bank’s decisions in light of the changing economic climate.
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