Majority expect up to 200bps reduction in key policy rate in upcoming MPC meeting, AHL survey finds

The State Bank of Pakistan (SBP) might opt to further reduce the key policy rate by up to 200 basis points (bps) in line with a downward trajectory of the pace of inflation and improved economic indicators, a brokerage house survey stated.

The survey found that 61.1% of the respondents expect a reduction of 200bps, followed by 25% predicting 250bps cut, while 13.9% sees 150bps reduction in the policy rate, Arif Habib Limited (AHL) said on Wednesday.

It added that 100% of respondents anticipated that the SBP would lower the policy rate.

In the previous meeting, the MPC unleashed its most aggressive cut in the key policy rate since April 2020, reducing it by 200bps to bring it down to 17.5% amid slowing inflation and declining international oil prices.

The Monetary Policy Committee (MPC) is scheduled to meet again on November 4 to decide about the monetary policy.

The macroeconomic indicators such as significant drop in inflation, current account surplus, increase in remittances, uptick in the foreign exchange reserves on the back of inflow from the International Monetary Fund (IMF) could enable the SBP to cut the policy rate, according to the survey.

“We believe a 200bps rate cut is on the horizon in the next scheduled monetary policy on November 04, 2024, potentially lowering the policy rate to 15.5%—a level last seen in Nov’22, when it was 16.0%,” AHL said.

Lowest reading since Jan 2021: inflation in Pakistan clocks in at 6.9% in September 2024

This would be the fourth consecutive rate cut since the interest rate reversal began in June 2024, signaling the country’s improving macroeconomic outlook and leading to a clear shift in the SBP’s monetary policy stance, it added.

“If this happens, it would bring the total reduction to a staggering 650bps, matching the historic cuts from Jul’01 to Nov’02.”

Most aggressive cut since April 2020: SBP reduces key policy rate by 200bps, brings it down to 17.5%

The respondents included participants from financial services such as banks, asset management companies, insurance firms, and development finance institutions, and non-financial services/manufacturing sectors, including exploration and production, cement, fertilisers, steel, textiles, and pharmaceuticals, AHL said.