
The State Bank of Pakistan's (SBP) old building in Karachi. — AFP/File
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According to analysts, thanks to inflation and external account improvement, Karachi: State Bank of Pakistan is likely to reduce its benchmark interest rate on Wednesday, which is expected to reduce mostly 50 points (BPS).
The central bank of Pakistan began to decline in the rate of 22 % in June 2024. After lowering the rates by 10 percent points, it stopped in March. Although the SBP reduced another 100bps rates in May, it chose to keep the rates stable in June due to an increase in tensions between Iran and Israel.
Analysts and financial markets most expect the SBP’s Financial Policy Committee (MPC) to reduce interest rates by focusing on ease of ease at their meeting on Wednesday. Although the policy rate is expected on a large scale of 50bps cut, some predictions expect a softening of 100bps. However, some analysts expect the SBP to be cautious.
In June, Pakistan’s consumer prices index inflation increased by 3.2 percent, and the annual inflation rate for the fiscal year, which ended on June 30, had decreased from 23.41 percent to 4.49 percent before this year.
“We expect the SBP to restart the softening of the monetary, as geopolitical stress is focused on improving economic indicators,” AKD Securities Director Research Director Evice Ashraf said in a note, “said AKD Securities.
Ashraf said, “The SBP decision can probably be driven by the intersting inflation, more than two decades of high current account surplus, the real interest rates between foreign exchange reserves and slow economic activities at a height of 3.3 years.
“We expect the MPC policy to reduce the policy rate by 50bps to 10.5 percent, after which the rest of the CE 25 will easily facilitate 100 BPS.”
Currently the country’s outdoor position is in a manageable zone, and analysts expect foreign exchange reserves to increase, supporting $ 7 billion loan programs, strong workers remittances, low interest payment, and credit rating upgrades under international markets under international markets. SBP reserves have increased to more than $ 14 billion.
Rupees have been strengthened by law enforcement agencies after facing pressure due to crackdown on currency smuggling.
“With a decrease in inflation, a year ago, the development and outdoor position is much stronger than a year ago, the SBP has less macro -space, and the market is expected to work,” said Sana Tofak, head of the research at Arif Habib Limited.
Optimus Capital Management Analysts, Fazal Azam, expect the headline CPI to be 3.3 percent in July year, with basic inflation close to 7.0 percent. However, it has predicted the policy caution to continue.
“Although it provides more ROOM capacity for more financial relaxation and the market is expected to keep it, SBP is likely to maintain cautiously,” said Azam.
Reuters added: All 14 surveyed analysts are expected to decline the State Bank of Pakistan rates, in which nine have also offered 50 BPS kit -median forecasts – while four have a deep 100bps cut and a 25bps reduction.
Earlier this month, SBP Governor Jamil Ahmed told Reuters the next Asia Summit that the central bank would maintain a ‘tough’ stance to strengthen inflation in its 5-7 percent target, adding that its policy was already affecting both inflation and external accounts.
Ahmad Mobin, senior economist at S&P Global Market Intelligence, said that SBP rates will decrease further, but more “cautious” pace can be adopted in the second half of the year due to import demand and global commodity risks.
Mustafa Pasha, Chief Investment Officer of Lockson Investment, said that the central bank could gradually reduce the rates in the first half of 2026, which completed strong buffers and budget and IMF reviews.