SBP Likely to Keep Key Policy Rate Steady in Tuesday's Monetary Policy Committee Meeting

The State Bank of Pakistan (SBP) is anticipated to maintain its key interest rate for the fourth consecutive policy meeting on Tuesday.

Analysts project a stable rate as inflation is predicted to decline in the coming months, potentially opening the door for future rate cuts to stimulate the economy. The current rate, elevated to a record 22% in June, has held steady in the past three meetings.

While one analyst suggests a 100 basis point cut, the median estimate from a Reuters poll of 12 analysts anticipates no change. Inflation, though still high, is expected to ease from February 2024, according to Usman Zahid, director of research at AKD Securities. Despite a 2.7% month-on-month increase in November inflation, the annual rate stood at 29.2%, showing signs of improvement from its May peak of 38%.

Investors have factored in a peak in interest rates, and optimism surrounding the successful completion of the IMF program has boosted stock markets and the currency. Pakistan's benchmark index recently hit an all-time high, reflecting a 7.3% weekly return, the largest ever in terms of points, as stability in currency, a reduced current account deficit, and the potential decline in inflation create a positive economic outlook.

Mohammad Sohail, CEO of Topline Securities, suggests that these factors may lead the committee to consider a downward adjustment of rates, with a possible 100 basis point cut expected on Tuesday.