Is a 100 bps cut likely at the Jan 27 monetary policy meeting?

Topline Securities (Private) Limited has just published a report on the SBP monetary policy update.

The State Bank of Pakistan (SBP) is holding its Monetary Policy Committee (MPC) meeting on January 27, 2025. According to a poll by Topline Securities, most participants expect a rate cut of 100 basis points (bps). The other participants expect rate cuts ranging from 50 to 250 bps, with some expecting no change. The reason for this expectation is the high real rates in January 2025, despite recent cuts.

Inflation rates fall significantly, with monthly inflation for January 2025 expected to be around 3.5%, the lowest in 103 months. This is due to falling food prices and negative electricity price adjustments. Most participants believe the SBP will announce a 100bps rate cut, continuing the trend of rate cuts in the past meetings. After this cut, real interest rates will still be higher than Pakistan’s historical averages.

Topline Research conducted another poll, showing that 73% of participants expect the central bank to cut rates by 100 bps. Most participants expect inflation for FY25 to be below 8%, slightly lower than earlier projections. This is due to recent increases in international oil prices and expected gas price hikes under the IMF program guidelines.

The SBP Governor states that the FY25 average inflation will fall below the previous range of 11.5-13.5%. The new target range is expected to be between 7-9%. Most participants now expect interest rates to be between 10-12% by June 2025. The majority expect rates below 12% by December 2025, reflecting the central bank’s strategy to maintain positive real rates to handle any external or budgetary shocks.