The State Bank in Pakistan (SBP) is expected to announce the reduction of 50 basis points (BPS) in its policy price to 11.5 % during the upcoming monetary policy meeting scheduled for May 5, 2025, according to analysts at Arif Habib Limited. The expectation depends on a continuous decrease in inflation, a strong pillow for the interest rate, and the continuous weakness in local industrial production.
The main inflation decreased to 0.7 % on an annual basis in March 2025, which is the lowest level in approximately six decades, and is expected to decrease to 0.45 % in April. This great moderation has pushed real interest rates to about 11.3 %, creating a space for cash dilution while maintaining macroeconomic stability. During a period of 10 months of the fiscal year 25 (10mfy25), the average main inflation is 4.88 %, compared to 26.22 % during the same period last year.
However, the basic inflation is still high, as NFNE (NFNE) is expected by 7.72 % on an annual basis in April. It is also expected to diminish the high basic effect that supports inflation in the coming months, which may put some upward pressure on future inflation readings.
On the external front, Pakistan published a surplus of $ 1.2 billion in March 2025 and a cumulative surplus of $ 1.86 billion during 9MFY25, and largely supports 33 % increase on an annual basis in transfers. However, a 11 % increase on annual basis in imports during the same period indicates that local demand may gradually recover, which may lead to new pressure on the external account.
LSM is widely contracted by 3.5 % yearly in February 2025, enhancing the issue to obtain additional cash support to stimulate industrial activity. Meanwhile, the money market behavior was mixed, as long length revenues are heading to a decrease while the return on the short term increased slightly, indicating the market’s cautious expectations before the monetary policy decision.
A recent survey conducted by Arif Habib Limited found that 54.6 % of respondents expect SBP to reduce the policy price, with 18.2 % expected specifically a 50 -bit reduction per second. On the other hand, 45.4 % is expected.
Compared to the previous market evaluations, when a Topline Stock Exacted showed strong expectations for price reduction but basic expectations for immediate change, current data now provides a clearer condition for cash dilution. Earlier, concerns related to the delay in external flows and the directives of the International Monetary Fund for narrow monetary policy were the main reasons for caution. However, the most modern developments-including the most obvious inflation than expected, a stronger external account position, and the continuous weakness of industrial production-strengthened the reducing reducing argument in the policy rate at this meeting.
