The State Bank of Pakistan (SBP) will hold its Monetary Policy Committee (MPC) meeting on December 16, 2024. Based on a survey conducted by Topline Securities, a 71 percent majority of respondents have said there will at least be a minimum 200bps rate cut.
Of these, 63 percent expect a cut at 200bps: 30 percent anticipate a reduction somewhere in the range of 250bps and 7 percent expect a cut over 250bps. Meanwhile, 29 percent expect a rate reduction from somewhere in the 50-150bps band with 69 percent of them leaning toward a 150bps cut.
This expectation should be interpreted in the context of what has been historically high real rates of 1010bps in November 2024, against the historical average of 200-300bps-at the same time as there has been a cumulative cut of 700bps in the last four consecutive meetings since June 2024. The monthly inflation reading for November 2024 fell sharply to a sweeping 78-month low by registering a meager 4.9 percent, primarily due to rapid food disinflation and negative price adjustments on account of electricity consumption (FCA).
A 200bps rate decrease would bring the total reduction to 900bps, thus establishing the fifth drop in this trend. After this reduction, however, real interest rates will still amount to a relatively high 810bps, compared to Pakistan’s historical average of 200-300bps. Based on a medium-term average inflation forecast of 7-8 percent for FY25 and of 8.5-9.5 percent for FY26, real rates after this 200bps cut (policy rate at 13 percent) would range between 400-550bps.
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SBP is looking to have positive real rates under 300-400bps to absorb any external shocks or budgetary shocks. Compared to the previous MPC meeting of November 04, 2024, 6M KIBOR and Treasury bills rates have declined 74-81bps to stand at 12.59 percent and 12.16 percent, respectively. Furthermore, 59 percent of the participants anticipate that the inflation rate will remain below 8 percent in FY25.
Topline Research has surveyed the main market players about their expectations on the policy rate and average inflation for FY25. Among those, 71 percent expect a minimum cut of 200bps, while 45 percent expect a total cut of 200bps, 21 percent expect 250bps of the cut, and 5 percent expect a cut more than 250bps. The other expectations include a 150bps cut by 20 percent, a 100bps cut by 7 percent, and a 50bps cut by 2 percent.
Expect this to be at 59 percent who believe that inflation will be below 8 percent in FY25 as opposed to 28 percent previously, with dwindling fuel cost adjustments and costs of food being lower. In terms of inflation, the report estimates that inflation will average between 7-8 percent in FY25 and 8.5-9.5 percent in FY26.
By June 2025, 59 percent expect that rates of interest would hover somewhere around 10-12 percent as against the 34 percent in the previous survey. Also, now 70 percent believe that interest rates are likely to go lower than 12 percent, in contrast, that it was only 38 percent earlier.