- Some expect a reduction of 50 basic points (BP) in the policy rate.
- Analysts warn about potential recession, inflation due to tariffs.
- The TresMark survey shows that 68% of merchants do not expect changes in politics.
Karachi: In the light of economic and geopolitical uncertainty, together with inflation concerns, it maintains its key interest rate without changes in 12% with analysts minimizing the possibilities of a change until the budget for the next fiscal year (Fy26) was announced and the inflation risks became clearer. The news reported on Sunday.
Most analysts and surveys of the main brokerage companies have predicted that the SBP, on Monday, would maintain the waiting policy rate, while some forecast a reduction of 50 basic points (BP). However, few estimate that rates would be reduced by 100 bp.
If the majority is correct, that would mark the second consecutive rate retention of the Central Bank since a monetary flexibility cycle began in June 2024. Since then, rates have been reduced by 1,000bps. The SBP kept the rates without changes in 12% during the last monetary policy meeting in March, citing risks of price increases due to the highest rates of the USA.
The SBP monetary policy committee (MPC) has space to further reduce rates, since inflation decreased to 0.3% in April, below 0.7% in the previous month. However, concerns about Pakistan’s economy derived from global commercial interruptions, geopolitical tensions and inflation pressures after the next budget can force the SBP to proceed with caution at this time.
Analysts have warned that the tariff actions of the president of the United States, Donald Trump, could cause more damage than expected. Possible recessions and inflation shocks could negatively affect remittances, an essential support for Pakistan’s external current account.
Saad Hanif, Chief of Research of Ismail Iqbal Securities, said the MPC highlighted the continuous risks of high central inflation and potential increases in food prices and energy during their last meeting. The IMF has also underlined the need for sustained monetary discipline, noting that the complete effects of previous rates cuts have not yet felt.
“With the federal budget that is approaching in June, it is likely that the policy formulators closely monitor their possible inflationary consequences. In this context, we hope that the MPC maintains the policy rate at the next meeting,” said Hanif.
It is likely that the SBP adopts an approach to wait and see before the review of the rescue loan program of $ 7 billion of the IMF on May 9, when it will decide whether to release the section of $ 1 billion to Pakistan. In addition, the global lender will discuss a new loan of climate resilience of $ 1.3 billion.
A TresMark survey shows that 68% of merchants do not expect changes in the next monetary policy.
“The markets are shaken by commercial risks, capital exits and a central bank that is cautious. More than $ 225 million has silently left bonds and shares (April 2025). A cut could expand the exit door,” he said.
“That said, the growth history is buried. Export to GDP continues to fall. The FDA is flaccid. If there has ever been a case for monetary stimulus, now it is.
Perhaps, the Central Bank may need to prioritize growth by caution, ”he added.
SANA TAWFIQ, Director of Research at Arif Habib Limited, anticipates a 50 PB cut in interest rates, reducing them to 11.5%. This expectation is driven by a trend of disinflation and a historically high interest rate of 11.3%.
“We believe that a measured and cautious rate cut would help support economic recovery without undermining macroeconomic stability, especially given the improved external account position, but still vulnerable,” Tawfiq said.
“Although Pakistan registered a current account surplus of $ 1.86 billion in 9MFy25, a recent increase in imports and geopolitical uncertainties in the region could represent risks for inflation and the exchange rate. These developments can encourage the PSB to calibrate the rhythm of relieving carefully while maintaining surveillance in the evolution of external dynamics,” he added.
