SBP to maintain the rate of policy on waiting amid inflation concerns, geopolitical tensions

• Some are expecting a decrease in 50 base points (BPS) to policy.
  
• Analysts warn of the possible recession, inflation due to invoices.
• Tresmark’s poll shows that 68% of traders expect no change in politics.
  

Karachi: In the light of economic and geopolitical uncertainty coupled with inflation concerns, it is expected to maintain its key interest rate unchanged at 12% with analysts downgrading the chances of shift until the budget for the next financial year (FY26). The news reported on Sunday.

Most analysts and surveys from large stock markets have predicted that SBP on Monday would keep the policy rate on waiting, while some have predicted a decrease in 50 basis points (BPS). However, few estimates that the percentages will be reduced by 100bps.

If the majority is correct, this will mark the second consecutive interest rate of the Central Bank since a curing of monetary relaxation in June 2024. Since then, rates have been reduced by 1,000bps. The SBP kept the rates unchanged at 12% during the last meeting of monetary policy in March, reporting risks of prices due to higher US invoices.

The SBP Monetary Policy Committee (MPC) has room to further reduce rates, as inflation decreased to 0.3% in April, from 0.7% in the previous month. However, concerns about Pakistan’s economy coming from global trade disorders, geopolitical tensions and inflation pressures after the upcoming budget can force SBP to move carefully at this time.

Analysts warned that US President Donald Trump’s pricing actions could cause more damage than expected. Possible recession and notorious shocks could negatively affect remittances, a substantial support for Pakistan’s external running account.

Saad Hanif, head of research on the ISMA IQBal Securities, said the MPC underlined ongoing risks from increased core inflation and possible increases in food and energy prices during its latest meeting. The IMF also emphasized the need for prolonged monetary discipline, noting that the complete impact of previous interest rate cuts have not yet felt.

“With the federal budget approaching in June, politics are likely to closely monitor their possible inflationary consequences.

The SBP is likely to adopt a waiting-and-seeing approach before the revision of the $ 7 billion rescue program on May 9, when it decides whether the $ 1 billion in Pakistan will be released. In addition, the global lender will discuss a new $ 1.3 billion loan.

A Tresmark poll shows that 68% of traders expect no change in upcoming monetary policy.

“Markets are hit by commercial risks, capital outflows and a central bank that is properly careful. Over $ 225 million are quiet from bonds and shares (April 2025).

“This is what the story of development is buried.

Perhaps the central bank may need to be given priority to growth with care, “he added.

Sana Tawfiq, head of research at Arif Habib Limited, is expecting 50 BPs cuts, lowering them to 11.5%. This expectation is due to a trend of frustration and historically high real interest rate 11.3%.

“We believe that a measured and careful cut of interest rates would help to support the economic recovery without undermining macroeconomic stability, especially given the improvement, but still vulnerable, external account position,” Tawfiq said.

“While Pakistan has published a surplus of current transactions of $ 1.86 billion in $ 9mfy25, a recent increase in imports and geopolitical uncertainties in the region could create risks to inflation and exchange rate.