SBP to keep rates steady on Monday: report

KARACHI: The State Bank of Pakistan (SBP) is expected to keep its key interest rate unchanged next week, following a reduction in May, a brokerage report and a poll showed on Thursday.

Fifty-six per cent of market participants in the Topline Securities poll forecast the SBP would hold its policy rate steady at 11 per cent at its upcoming meeting on Monday. However, 44 per cent anticipate a rate cut of at least 50bps.

The SBP lowered its policy rate by 1 percentage point last month, continuing a trend of rate cuts that have lowered the rate from a record high of 22 per cent following a brief pause in March. Since June 2024, interest rates have fallen by 11 percentage points.

“In our view, the central bank has further room for around a 100bps cut, as we expect FY26 inflation to average between 6 and 7 per cent, translating into a real rate of 400-500bps (policy rate: 11 per cent), higher than the historical real rate of 200-300bps,” wrote Topline Securities in a note. “However, we expect the status quo in upcoming monetary policy,” it added.

The same report expects interest rates to fall to and bottom out at 10 per cent by the end of December this year.International crude oil prices have rebounded to $68-70 per barrel amid rising tensions in the Middle East and an expected US-China deal. “This warrants a cautious approach from policymakers, in our view, as oil prices’ movement has remained a major driver of inflation in the past,” it noted.

Some of the major notifications are also expected before the start of the next fiscal year, such as gas and electricity price notifications, among others. “The inflationary impact of these measures is yet to be assessed and absorbed, in our view.”

Pakistan’s Consumer Price Index increased by 3.5 per cent YoY in May, above the finance ministry’s prediction of 1.5-2 per cent. In April, annual inflation decreased to 0.3 per cent, the lowest rate in nearly a decade, a significant decline from 11.8 per cent in May 2024 and a record high of nearly 40 per cent a year earlier. The finance ministry's monthly report said that inflation is projected to rise to between 3.0 per cent and 4.0 per cent in June. The government has set a target of 7.5 per cent for the next fiscal year, staring in July, and the International Monetary Fund (IMF) expects 7.7 per cent average inflation for FY26.In the last monetary policy committee meeting held on May 5, out of nine members, eight voted for a 100bps cut.