State Bank of Pakistan (SBP) is scheduled to hold its Monetary Policy Committee (MPC) meeting on May 05, 2025. In a Poll conducted by Topline Securities, 56% of the market participants expect a status quo in upcoming monetary policy meetings compared to 31% in the last poll. At the same time, 44% expect a rate cut of at least 50 basis points.
§ Out of a total of 44% rate cut participants, 19% are expecting a 50bps cut, and 25% are expecting a 100bps cut.
§ In our view, the central bank has further room for around a 100bps cut as we expect FY26 inflation to average. Between 6-7%, translating into the real rate of 400-500bps (Policy Rate: 11%), higher than the historical real rate of 200-300bps. However, we expect the status quo in upcoming monetary policy based on the following reasons.
- International crude oil prices have rebounded to US$68-70/barrel amid rising tensions in the Middle East region and an expected US-China deal. This warrants a cautious approach from policymakers, in our view, as the oil price movement has historically been a major driver of inflation.
- Some of the major notifications are also expected before the start of the next fiscal year, i.e., gas price notification and electricity price notification, among others. The inflationary impact of these measures is yet to be assessed and absorbed, in our view. That said, we believe the Central Bank will observe the status quo in the upcoming meeting.
§ Minutes of the last monetary policy meeting: In the previous MPC meeting on May 5, 2025, out of 9 members, eight voted for a 0.25% cut.
§ 6M KIBOR and 6 Months T-Bills are up 88-99 bps from the last MPC meeting: Amidst a decline in the policy rate by 100bps in the previous MPS, the yields of KIBOR and Tbills are lower by 88-99bps compared to the previous MPS. Currently, 6M KIBOR and 6M Tbills are priced at 11.09% and 10.95%, respectively.
§ Topline Research conducted a poll of key market participants on expectations over policy rate, average inflation, and PKR USD parity for FY26/Dec 2025.
§ Policy Rate: On questions related to the interest rate target for December 2025, 42% of participants believe the interest rate will remain in the range of 8-10%, compared to 37% earlier. While 58% believe the interest rate will remain over 10% by Dec 2025, compared to 63% earlier.
We expect the interest rate to fall to and bottom out at 10% by December 2025.
§ Inflation: On the Inflation side, 69% of respondents believe that inflation will remain in the range of 6-8%, 20% expect it to be between 8-10%, and 11% expect it to be below 6%.
We expect Pakistan’s Inflation to average between 6-7% for FY26. Similarly, the Government has set a target of 7.5% for the same year, and the IMF expects an average inflation rate of 7.7% for FY26.
§ Exchange Rate: On the currency side, 36% of participants expect the currency to close above Rs290/USD in December 2025, compared to 26% earlier. At the same time, 64% are expecting an exchange rate of between Rs280-290.
§ We expect currency to clock in at Rs288-292 by Dec 2025 and Rs298-302 by Jun 2026.
