The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) is expected to reduce the key policy rate by 50 basis points (bps), lowering it to 11.5 per cent in its upcoming meeting, according to a report from brokerage firm Arif Habib Limited (AHL) released on Monday. The MPC is set to meet on May 5, 2025.
AHL stated that the central bank is likely to make this adjustment as part of its monetary policy review. In its last meeting on March 10, the MPC kept the policy rate unchanged at 12 per cent.
During that meeting, the MPC acknowledged that inflation in February 2025 had been lower than anticipated, mainly due to falling food and energy prices.
However, the committee expressed caution, noting that the volatility of these prices could disrupt the downward trend in inflation. It also highlighted the persistence of core inflation, which remains elevated, warning that any rise in food and energy prices could lead to an increase in overall inflation.
AHL’s report suggested that the continued decline in inflation, alongside a significant real interest rate cushion, provides room for a measured rate cut to support economic recovery without undermining macroeconomic stability.
Inflation has been a key factor in the expectation of the rate reduction. In March 2025, the headline inflation rate fell to its lowest level in 60 years, at just 0.7 per cent, and is projected to decrease further to a historic low of 0.45 per cent in April 2025.
For the first 10 months of the fiscal year 2025, AHL estimates the average headline inflation at 4.88 per cent, a substantial improvement from 26.22 per cent during the same period last year.
This reduction is largely attributed to high base effects and softer food prices. However, the report also warned that the impact of the base effect would fade in the coming months, potentially placing upward pressure on inflation.
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