Business
SBP expected to cut rates by 100bps, Reuters poll
The decision will come before Pakistan’s annual budget
![SBP expected to cut rates by 100bps, Reuters poll](/media/107784/conversions/0512145827901d9-1280x720.webp)
Islamabad: The State Bank of Pakistan (SBP) is widely expected to cut its key interest rate next week by 100 basis points (bps) after holding it at a record 22 percent for seven straight policy meetings, according to a Reuters poll of market watchers.
The central bank will meet on Monday (June 10), a week after Pakistan posted its lowest consumer price index (CPI) reading in 30 months at 11.8 percent in May - lower than most projections.
The decision will come before Pakistan’s annual budget.
The median estimate in a Reuters poll of 16 analysts predicts the SBP will cut rates by 100 basis-points (bps).
Ten analysts are forecasting a 100 bps cut, one analyst expects a 150 bps cut, while four expect a 200 bps cut.
One respondent expected the bank to hold rates again.
Economic activity has been slow in Pakistan for the last two years as it implemented tough reforms under an International Monetary Fund (IMF) bailout in a bid to stabilise a crumbling economy.
GDP growth was expected to be at 2 percent in the current financial year, which ends in June, and was negative in the previous year. The government says it will target 3.5 percent this year as it expects an uptick in economic activity.
The government will formally approach the IMF for a new longer-term bailout this summer after completing a short term programme earlier this year that helped it avoid a default.
The lender had previously stressed the importance of keeping a tight monetary policy to control inflation, which remained above 20 percent since May 2022 and hit a record high last year at 38 percent.
Inflation has since slowed, and came in at below 20 percent in April and 11.8 percent in May.
“Given the sustained decline in inflation and the fact that SBP showed prudence by not prematurely cutting rates, it now has the space to cut without risking things with the IMF,” said Uzair Yonus, an economic analyst.
However, Fawad Basir, Head of Research at KTrade, said tax reforms being considered in the budget may have a far reaching impact on the economy and not just inflation.
“Once the impact of such decisions is evident in the high frequency data sets, followed by successful negotiation with the IMF, then the SBP will be in a good position to start the dovish stance possibly coinciding with US FED strategy".
SOURCE: REUTERS
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