Analysts see seventh straight policy rate cut
2025-03-08
KARACHI: Most analysts predict a seventh consecutive rate cut by the State Bank of Pakistan on Monday, amid the first International Monetary Fund (IMF) review of a $7-billion bailout at the time of the lowest inflation in nearly a decade.
Pakistan could unlock a further tranche of funding if the IMF review is approved before the budget is unveiled in June, as it pursues economic reforms mandated by the IMF programme. The central bank`s easing cycle, one of the most aggressive among emerging markets, follows a series of rate cuts totalling 1,000 basis points (bps) over seven months, that took the key rate to 12pe, down from a record high of 22pc in June 2024. The latest cut, of 100bps, was in January.
February inflation stood at a near-decade low of 1.5pc, largely due to a high base a year ago. A Reuters survey of 14 analysts suggests that the central bank may further reduce rates, with a median forecast for a cut of 50bps. Of the 10 analysts expecting a rate cut, three estimated its size at 100bps, one at 75bps, and six at 50bps. The rest saw no change.
Most analysts expecting a rate cut believe the central bank will stop when rates hit 10.5 to 11pe, due to a potential rise in inflation. Inflation will `bottom out` in the year`s first quarter before gradually rising, said Ahmad Mobeen, senior economist of S&P Global, who anticipates average inflation of 6.1pc for 2025.
`The S&P Global HBL Pakistan Manufacturing PMI also indicates rising input costs, pushing manufacturers to hike prices in February at the fastest pace since October 2024,` he added. At its last policy meeting, the central bank kept its forecast of full-year GDP growth at 2.5pc to 3.5pc, and predicted faster growth would help boost foreign exchange reserves that had been lacklustre.
`While GDP posted 0.9pc growth in the first quarter of FY25, large-scale manufacturing remains in negative territory, and production has yet to gain momentum,` said Sana Tawfik, head of research at Arif Habib Ltd. `The transmission of lower rates to economic activity is yet to be seen.`-Reuters