The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) is scheduled to meet today, Wednesday, July 30, 2025, to decide on the policy rate, with market experts strongly predicting a 50 basis point (bps) rate cut. The upcoming decision is being closely watched by businesses, investors, and economists alike, as it may signal a shift toward further monetary easing amid encouraging macroeconomic indicators.
At its last meeting on June 16, 2025, the MPC maintained the benchmark policy rate at 11%, citing concerns over a possible uptick in inflation. The committee observed that inflation in May 2025 rose to 3.5% year-on-year (YoY)—a figure that was within expectations—while core inflation had shown a marginal decline.
The MPC also expressed cautious optimism about the state of the economy, noting that economic growth was showing signs of recovery and was expected to strengthen in FY26, buoyed by the impact of earlier interest rate reductions.
According to several financial research firms and analysts, the conditions now favor a rate cut. Brokerage house Topline Securities stated in a recent report,
“We expect the central bank to announce a cut of 50bps in the upcoming MPC meeting.”
Topline analysts also believe the SBP has room to reduce rates by up to 100bps, given their forecast that inflation for FY26 will average between 5-7%, offering a real interest rate buffer of 400-600bps.
Likewise, analysts at Arif Habib Limited (AHL) echoed similar sentiments, suggesting the policy rate may be reduced to 10.5%.
“With inflation down, the external position currently in a manageable zone, and yields already on a downward slope, conditions seem ripe for further monetary easing,” AHL commented, although they also warned of potential risks, including global commodity volatility.
A Reuters poll of economists also supported the consensus forecast, showing unanimous expectations of a 50bps cut, with the policy rate likely settling at 10.5%.
Several favorable economic indicators have emerged since the last MPC meeting, reinforcing the case for a rate cut:
- Headline inflation for June 2025 came in at 3.2% YoY, according to Pakistan Bureau of Statistics (PBS). This is lower than the 3.5% recorded in May, continuing a disinflationary trend.
- The Pakistani rupee has shown modest strength, appreciating by 0.04% against the US dollar over the past month.
- Global oil prices, which directly affect Pakistan’s import bill and inflation outlook, have declined nearly 4%, currently hovering around $69 per barrel.
- Petrol prices have increased by 5.3% domestically, but this has not yet reversed the disinflation trend.
- The current account balance posted a remarkable surplus of $2.1 billion for FY2024-25, a stark turnaround from the $2.07 billion deficit in FY24, according to SBP data.
- Foreign exchange reserves remain relatively strong. As of July 18, SBP reserves stood at $14.46 billion, despite a weekly dip of $69 million. Total liquid foreign reserves amount to $19.92 billion, with commercial banks holding $5.46 billion.
Investors and market participants have reacted positively to the expected monetary easing. Bond yields have already adjusted downward in anticipation of a policy shift. Analysts believe a measured pace of rate cuts will benefit sectors such as construction, manufacturing, and banking, which are highly sensitive to interest rates.
Ahmed Mobeen, Senior Economist at S&P Global Market Intelligence, stated:
“While we anticipate further rate cuts, the SBP will likely adopt a more cautious stance in the second half of 2025, especially as import demand rises and external risks from global commodities persist.”
This cautious approach could mean that while the central bank is ready to lower rates now, aggressive easing may be off the table unless economic stability continues.
