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.
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