KARACHI: With inflation showing a decline, analysts are anticipating a potential rate cut of approximately 200 basis points in the upcoming monetary policy announcement on December 16, 2024.
The State Bank of Pakistan (SBP) is set to convene its Monetary Policy Committee (MPC) meeting on December 16, 2024, to assess key economic indicators and decide on the policy rate. The MPC has been gradually easing monetary policy in response to declining inflation since June 2024, with a total reduction of 7 percentage points across four meetings.
In a poll conducted by Topline Securities, some 71 percent of the participants expect that the central bank will announce another minimum rate cut of 200bps.
Out of the 71 percent, 63 percent expect the interest rate to be cut by 200bps, 30 percent expect a cut of 250bps, and 7 percent anticipate a cut of more than 250bps. While, remaining 29 percent expect a rate cut between 50-150bps, within this, 69 percent believe the rate cut would be 150bps.
Analysts said that the significant fall in YoY inflation in the last few months is on the back of faster food disinflation and negative electricity prices adjustments (FCA).
Therefore, analysts at Topline are viewed that the SBP will announce a rate cut of 200bps, taking the total cut to 900bps. This will be the 5th consecutive cut of this cycle.
Post this rate cut of 200bps, real interest rates will remain at 810bps, still higher than Pakistan’s historic average of 200-300bps.
However, based on average inflation of 7-8 percent for FY25 and 8.5-9.5 percent for FY26, real rates after the next 200 rate cut (policy rate 13 percent) would be 400-550bps. Based on this Topline has maintained its interest rate target of 11-12 percent for Dec 2025.
In order to absorb any mini budget impact and external shock, analysts believed, State Bank will continue to keep a positive real rate in the range of 300-400bps in medium terms over forward-looking inflation.
Led by falling inflation expectations, the 6M KIBOR and Treasury bills rate are down 74-81bps since the last monetary policy meeting on Nov 04, 2024 and currently hovering at 12.59 percent and 12.16 percent, respectively.
Copyright Business Recorder, 2024
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