The State Bank of Pakistan is scheduled to announce its monetary policy on September 12, 2024.

• We anticipate a 150bps cut, bringing the policy rate down to 18%— a level last seen in Feb’23, when it had dropped to 17%.
• This would mark the third consecutive rate cut since the commencement of the interest rate reversal cycle in Jun’24.
• Key recent improvements in macroeconomic indicators that support our expectation of a rate cut are as follows:
• The main factor supporting our anticipated rate cut is the significant decline in inflation. In August ’24, inflation fell to a single digit of 9.6%, resulting in a real interest rate of ~1,000bps, which creates room for further rate cuts. Additionally, both headline and core inflation rates in Pakistan have decreased. For the 2MFY25, the average inflation rate is 10.4%, a substantial drop from 27.8% in FY24.
• Furthermore, on the external front,  the current account deficit at the beginning of FY25 substantially decreased to USD 162 million in July ’25. This represents a significant improvement compared to the USD 741mn deficit recorded in the same period last year. The reduction in the deficit is largely attributed to a 48% YoY increase in remittances. This significant reduction has contributed to the stability of the PKR against the US dollar.
• Additionally, Large Scale Manufacturing Index (LSMI) has slightly improved performance. For FY24, LSMI reported a 0.94% YoY increase in production, with positive growth observed in ten sectors, including food, coke and petroleum products, apparel, and pharmaceuticals.

Courtesy – AHL Research