KARACHI: Pakistan’s central bank has scope to lower its key interest rate by up to 100 basis points by December, analysts said on Thursday, as inflation continues to ease and global oil prices remain stable—creating favorable conditions for monetary easing and economic stimulus.
The State Bank of Pakistan’s (SBP) Monetary Policy Committee is scheduled to meet on July 30 to review the policy rate. According to a report by Topline Securities, a Karachi-based brokerage firm, 56 percent of market participants expect the central bank to cut rates by 50 to 100 basis points, while 37 percent believe the rate will remain unchanged at the current 11 percent.
Analysts believe the macroeconomic environment now provides room for a policy shift. In its previous meeting, the SBP held the interest rate steady, citing uncertainty over the federal budget and geopolitical tensions in the Middle East. However, with inflation cooling and fiscal outlooks improving, many expect a rate cut this time around.
“We expect inflation to average between 5–7 percent in FY26, which gives room for a total rate cut of 100 basis points, factoring in a real interest rate of 400 basis points,” said Shankar Talreja, Head of Research at Topline Securities, speaking to Arab News. He expects a 50 basis point cut in the upcoming meeting and forecasts the policy rate to bottom out at 10 percent by December 2025.
Shahid Ali Habib, CEO of Arif Habib Ltd., also anticipates a 50 basis point cut. He noted that the SBP has already slashed rates by an aggressive 1,100 basis points from a peak of 22 percent over the past year, in response to the declining inflation trend.
“A rate cut at this point would help reduce financing costs, stimulate productivity, and support economic recovery after a modest 2.68 percent GDP growth in FY25,” Habib said.
The Sharif government is targeting a GDP growth rate of 4.2 percent for the current fiscal year, up from 2.7 percent last year. Backed by a $7 billion IMF loan, Pakistan’s economy has recently shown signs of stability, with inflation dropping to 3.2 percent in June and the current account registering a surplus of $328 million last month.
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Habib expects FY26 inflation to average around 5.4 percent, with core inflation at approximately 8 percent—further supporting the case for monetary easing.
However, Talreja cautioned that the anticipated rate cut may not have a major impact on the stock market, which has already priced in the move. The KSE-100 Index has surged by 19 percent since January, recently hitting a record 140,585 points during intraday trading.
“The bond market has already factored in a 50 basis point cut, with treasury bills trading at 10.7 percent,” Talreja said. “While a rate cut will slightly ease borrowing costs for businesses, the broader market impact may be limited.”
He added: “Frankly, whether it’s a 50 or 100 basis point cut doesn’t make a huge difference at this point—we’ve already seen a substantial easing of over 1,100 basis points in the past year.”