Poll shows market participants eye rate cut ahead of monetary policy meeting

KARACHI: In a poll conducted by Topline Securities, 56 per cent of market participants expect a 50-100 basis points cut in the upcoming monetary policy meeting, up from 44 per cent in the previous poll. Meanwhile, 37 per cent anticipate no change in the policy rate, compared to 56 per cent in the last survey regard the MPC.

The State Bank of Pakistan (SBP) is scheduled to hold its Monetary Policy Committee (MPC) meeting on July 30, 2025.

In the previous MPC meeting, most participants were unsure about a rate cut due to the impending federal budget and rising oil prices triggered by the Iran-Israel conflict. Reflecting these concerns, the central bank kept the policy rate unchanged at 11 per cent.

Topline Securities noted that the central bank has room for a rate cut of around 100 basis points, as it expects inflation in FY26 to average between 5-7 per cent. This translates into a real interest rate of 400-600 basis points (with the current policy rate at 11 per cent), significantly higher than the historical average of 200-300 basis points.

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However, Topline cautioned that this room is largely notional and that any easing would be gradual. It expects the central bank to announce a 50 basis points cut in the upcoming MPC meeting.

The brokerage based its view on the following:

FY26 inflation is projected to average 5-7 per cent, with July inflation expected in the range of 3-3.5 per cent. Inflation is forecast to remain between 3-5 per cent until January 2026, and between 6-8 per cent from February to June 2026.

This suggests a real rate of 400-600 basis points based on the projected average inflation.

Since the last MPC meeting, secondary market yields have declined by 10-39 basis points. The six-month KIBOR currently stands at 10.99 per cent, while six-month T-bills are at 10.75 per cent.

Topline also conducted a broader survey of key market participants on their expectations for the policy rate, average inflation, and PKR/USD exchange rate for FY26 and December 2025.

Policy Rate

When asked about the policy rate target for December 2025, 51 per cent of respondents said they expect the rate to fall to 10 per cent, while 32 per cent anticipate it will reach 9 per cent. In line with this, Topline also expects the interest rate to bottom out at 10 per cent by the end of 2025.

Inflation

 On the inflation front, 54 per cent of respondents believe it will remain in the range of 6-8 per cent, while 27 per cent expect it to be between 4-6 per cent. Topline projects Pakistan’s inflation to average between 5-7 per cent for FY26. The government has set a target of 7.5 per cent, and the IMF projects an average of 7.7 per cent for the same period.

Exchange Rate

Regarding the exchange rate, 51 per cent of participants expect the rupee to trade in the range of Rs285-290 per dollar by December 2025. Additionally, 15 per cent each expect it to be in the ranges of Rs290-295, Rs295-300, and above Rs300. Topline projects the currency to be around Rs288-292 by December 2025 and Rs298-302 by June 2026.

Syed Raza Hassan