The State Bank of Pakistan (SBP) may announce a 50-basis-point (bps) interest rate cut in its upcoming Monetary Policy Committee (MPC) meeting on March 10, according to Arif Habib Limited (AHL). The falling inflation rate has created room for further monetary easing, but the central bank faces a delicate balancing act between economic growth and macroeconomic stability.
Inflation at Record Low
Pakistan’s inflation dropped to 2.4% in January, marking its lowest level in 111 months. Analysts expect it to decline further to 2.2% in February. In response, the SBP has been gradually lowering interest rates since June 2024. In January, it cut the benchmark rate by 100bps to 12%, bringing the total reduction to 1,000bps in eight months.
Read: US Approves $3 Billion Arms Deal with Israel Amid Rising Tensions
IMF Review and Policy Considerations
The SBP’s decision will coincide with an International Monetary Fund (IMF) review of Pakistan’s $7 billion bailout package, starting on March 3. The IMF delegation will assess new revenue targets and taxation policies, which could influence inflation projections and monetary policy adjustments.
Market Expectations for Rate Cut
According to AHL, a 50bps rate cut is the most likely outcome of the March 10 meeting. The firm believes that stable foreign exchange reserves and the significant drop in inflation make further easing a logical step.
However, some indicators suggest a cautious approach. Core inflation remains high, the current account deficit persists, and market yields are rising. Analysts warn that the rate-cutting cycle may be nearing its end.
Diverging Opinions on Monetary Policy
Another brokerage firm, Topline Securities, believes the SBP has room for a 100bps rate cut due to a real interest rate margin of 300-400bps. However, the firm expects the central bank to hold rates steady due to recent economic developments:
- Higher imports: Import levels have averaged $5.2 billion over the last two months.
- Rupee depreciation: The currency has weakened by 1.6% since November 2024 in the kerb market.
- Overvaluation concerns: The real effective exchange rate (REER) stood at 104.05 in January, indicating the rupee may be overvalued compared to regional peers.
Survey Results on Policy Rate Outlook
A poll by Topline Securities showed 62% of market participants expect a rate cut, while 38% believe rates will remain unchanged. Among those predicting a reduction:
- 36.8% expect a 100bps cut
- 21.1% anticipate a cut of more than 150bps
- 10.5% foresee a 50bps cut
- 5.3% expect a 75bps cut
Meanwhile, 26.3% of respondents believe the policy rate will stay at 12%.
Balancing Growth and Stability
With inflation at record lows and economic challenges persisting, the SBP must carefully weigh its decision. While a 50bps cut appears likely, external factors such as the IMF review, exchange rate movements, and fiscal policies will also influence the final verdict. The March 10 meeting will set the tone for Pakistan’s monetary policy trajectory in the coming months.
Follow us on Google News, Instagram, YouTube, Facebook,Whats App, and TikTok for latest updates