Pakistan’s central bank likely to cut interest rate in July 30 policy meeting

The State Bank of Pakistan (SBP) is expected to cut interest rates in its next Monetary Policy Committee (MPC) meeting scheduled for July 30.

A growing number of market participants believe a cut is likely, according to a poll by Topline Securities. The survey found that 56% now expect a 50 to 100 basis points (bps) reduction in the policy rate, up from 44% in the previous poll. Meanwhile, 37% foresee no change, compared to 56% who held that view before the last policy announcement.

If the SBP cuts the rate by 50 to 100 bps, it would mark the lowest level in over three and a half years. The last time this level was seen was in December 2021, when the rate stood at 9.75%. It remained unchanged until April 2022, when the central bank raised it to 12.25%.

In its last MPC meeting, the SBP kept the policy rate at 11%. The decision came amid uncertainty over the federal budget and geopolitical tensions, particularly the Iran-Israel conflict, which had driven up global oil prices.

With those concerns now easing and inflation trending downward, analysts believe there is space for a more accommodative policy.

Topline Securities expects a 50bps cut in the July 30 meeting, citing falling inflation and lower money market yields. "With FY26 inflation expected to average between 5-7%, the current real interest rate stands at 400-600bps, well above the historical norm of 200-300bps," the report said. "This suggests room for further cuts, although we believe the pace of easing will be gradual."

Market indicators support this view. The 6-month Karachi Interbank Offered Rate (KIBOR) has fallen to 10.99%, while 6-month Treasury bill yields have dropped to 10.75%. These numbers reflect lowered expectations for tighter monetary policy.

A broader Topline Research survey also gauged market sentiment on inflation, policy rate trends, and the exchange rate for FY26 and December 2025.

Policy rate outlook: 51% of respondents expect the policy rate to fall to 10% by December 2025, while 32% believe it could drop as low as 9%. Topline agrees, projecting the rate to bottom out at 10% by year-end.

Inflation expectations: 54% of respondents expect average inflation between 6-8%, and 27% foresee it in the 4-6% range. Topline forecasts 5-7% inflation in FY26, which aligns with the government's 7.5% target and the IMF’s 7.7% estimate.

Exchange rate forecast: 51% of respondents expect the rupee to trade between Rs. 285 and Rs. 290 per USD by December 2025. About 45% predict further weakening, with expectations ranging from Rs290-295 to over Rs300.

As the SBP prepares for its next policy decision, analysts say the economic environment supports a gradual rate-cutting cycle. However, the central bank is expected to proceed cautiously to ensure macroeconomic stability and manage inflation expectations.