The State Bank of Pakistan is widely expected to announce an SBP rate cut at its upcoming monetary policy meeting on Monday, as economists increasingly believe that macroeconomic conditions now support further easing. According to a Reuters poll, a majority of analysts are forecasting a reduction in the key policy rate, with the median expectation pointing to a 50 basis point cut.
Seven out of ten analysts surveyed expect the SBP rate cut to be limited to 50 basis points, while two anticipate a deeper 75 basis point reduction. One analyst expects the central bank to keep rates unchanged, reflecting lingering concerns over inflation risks.
SBP Rate Cut Would Extend Ongoing Easing Cycle
If the anticipated rate cut is implemented, the policy rate would fall to 10.5 percent. This would mark another step in the central bank’s ongoing easing cycle that began in mid-2024. Since then, the SBP rate cut measures have totaled 1,150 basis points, reflecting a gradual shift away from the tight monetary stance adopted during the peak inflation period.
Analysts note that the pace of easing has been carefully calibrated to avoid reigniting inflationary pressures while supporting economic recovery.
Economic Indicators Support SBP Rate Cut
Supporters of the SBP rate cut point to several improving indicators. Inflation has moderated significantly compared to last year, foreign exchange reserves have stabilized, and the balance of payments outlook has improved due to lower imports and stronger remittance inflows.
These factors, analysts argue, provide the SBP with room to continue easing without undermining macroeconomic stability. Some market participants believe that conditions are now aligning for a slightly faster rate-cutting cycle if inflation continues to trend downward.
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Caution Urged Despite SBP Rate Cut Momentum
Despite broad support for an rate cut, some analysts have urged caution. They warn that global geopolitical tensions, potential volatility in international oil prices, and external shocks could quickly reverse recent gains.
The International Monetary Fund has also advised Pakistan against premature monetary easing under its ongoing $7 billion loan program, emphasizing the need to preserve hard-won economic stability.
SBP Outlook on Inflation Remains Guarded
The central bank has acknowledged that inflation remained within its target range of 5 to 7 percent during the July to November period. However, the SBP has cautioned that core inflation remains sticky and that headline inflation could rise temporarily due to seasonal and administrative factors.
This guarded outlook suggests that while an SBP rate cut is likely, the central bank is expected to maintain a cautious tone and signal that future easing will depend on sustained improvements in inflation and external balances.
Editorial View on Rate Cut Decision
The expected rate cut reflects a delicate balancing act between supporting economic growth and safeguarding price stability. While recent data supports moderate easing, the central bank’s challenge lies in maintaining credibility amid domestic and global uncertainties.
A measured SBP rate cut, coupled with clear forward guidance, could help anchor market expectations while keeping Pakistan’s economic recovery on a stable path.
