State Bank of Pakistan Expected to Maintain Interest Rates Amid Positive Economic Signals

As the Monetary Policy Committee Meeting approaches on Tuesday, market experts anticipate that the State Bank of Pakistan (SBP) will opt to keep its key interest rate unchanged for the fourth consecutive session.

Analysts point to a stabilizing inflation outlook in the coming months, fueling speculation about potential future rate cuts aimed at stimulating the economy. Despite reaching a record high of 22% in June, the current rate has remained steadfast over the past three meetings.

While there is a suggestion from one analyst for a 100 basis point cut, a Reuters poll of 12 analysts presents a median estimate foreseeing no change. Usman Zahid, Director of Research at AKD Securities, notes that inflation, although still elevated, is expected to ease starting February 2024. Notably, November witnessed a 2.7% month-on-month increase in inflation, but the annual rate showed improvement, standing at 29.2% compared to its peak of 38% in May.

Investors have factored in the likelihood of a peak in interest rates, and positive sentiments regarding the successful completion of the IMF program have driven stock markets and the currency to recent all-time highs. Pakistan’s benchmark index experienced a remarkable 7.3% weekly return, the largest ever in terms of points, reflecting confidence in the economic outlook spurred by stabilized currency, a reduced current account deficit, and the anticipated decline in inflation.

In light of these positive economic indicators, Mohammad Sohail, CEO of Topline Securities, speculates that the committee may contemplate a downward adjustment of rates, suggesting a possible 100 basis point cut during Tuesday's meeting.