Key Takeaways
- Market participants expect the State Bank of Pakistan (SBP) to keep its benchmark policy rate unchanged.
- The SBP is likely to maintain rates due to geopolitical uncertainty and rising oil prices.
- Investors predict a stable Pakistani rupee against the US dollar by year-end.
A survey conducted by Topline Securities indicates that an overwhelming majority of market participants anticipate the State Bank of Pakistan (SBP) will keep its benchmark policy rate at 11.5 percent when the Monetary Policy Committee (MPC) meets on July 27.
According to the survey, 97 percent of respondents expect no change in the central bank's policy rate, while only 3 percent predict a 100 basis point reduction.
Topline Securities attributes this expectation primarily to heightened geopolitical uncertainty and recent increases in international oil prices, despite inflation remaining under control.
The SBP last reviewed monetary policy on June 15, when it also left the policy rate unchanged at 11.5 percent. Since then, market expectations have fluctuated based on developments in the Middle East.
Following the US-Iran memorandum of understanding on June 18, which led to a temporary easing of tensions and lower oil prices, markets had priced in cumulative rate cuts of 100 to 150 basis points over the next two to three MPC meetings. However, renewed tensions have pushed oil prices higher, prompting investors to scale back their expectations.
These changing expectations are also reflected in Pakistan's debt market. The six-month Treasury bill yield declined from 12.46 percent before the previous MPC meeting to 11.30 percent in early July but has since rebounded to around 11.50 percent over the past ten days.
The current six-month Karachi Interbank Offered Rate (KIBOR) stands at approximately 11.67 percent, indicating a stable outlook for interest rates.
Looking beyond the upcoming meeting, respondents were divided on the policy outlook for the rest of the year. About 49 percent expect the policy rate to remain at 11.5 percent by December 2026, while 46 percent foresee further monetary easing. Only 6 percent anticipate an increase in interest rates.
Topline Research expects the policy rate to fall below 11.5 percent by year-end, reflecting a more optimistic view on future economic conditions.
