KARACHI: With the State Bank of Pakistan (SBP) set to hold its Monetary Policy Committee (MPC) meeting on November 4, 2024, analysts anticipate a potential interest rate cut of at least 200 basis points, driven by easing inflationary pressures.
According to a poll conducted by Topline Securities, some 85 percent of the participants expect that the SBP will announce a minimum rate cut of 200bps.The poll was conducted with key market participants on expectations over policy rate, and average inflation for FY25.
Analysts believed that the larger rate cut expectations in the upcoming monetary policy meetings are driven by the single-digit inflation reading of 6.9 percent in Sep-2024, which is expected to continue in Oct-2024 within a range of 6.5 to 7.0 percent. Significant fall in YoY inflation in recent months is on the back of faster food disinflation and negative electricity prices adjustments (FCA).
The SBP is expected to continue monetary easing by announcing a rate cut of 200bps, similar to the cut of 200bps in the last monetary policy meeting, taking total cut to 650bps. This will be 4th consecutive cut of this cycle.
Post this rate cut of 200bps, real interest rates will remain at +860bps, still higher than Pakistan’s historic average of 200-300bps.
In the Topline survey out of the 85 percent, 63percent expect the interest rate to be cut by 200bps, 30percent expect a cut of 250bps, while 8percent anticipate a cut of more than 250bps.
Analysts believed that SBP will continue to keep positive real rate in 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 324-359bps
since last monetary policy meeting on Sep 12, 2024 and currently hovering at 14.43percentand 13.8percent, respectively. This also suggests, the market participants are expecting a big rate cut in upcoming meetings.
Analysts at Topline said that expect policy rate to come down to 13-14 percent by Jun 2025 with average inflation expectation for FY25 at 7-8 percent.
Of the total 100percent participants, 53percent of the participants expect a 200bps cut, 26percent expect a 250bps cut, and 7percent expect a decline of more than 200bps. While, 9percent expect a 150bps cut, 4percent expect a 100bps cut, and 2percent expect no change in the interest rate.
In the second question related to interest rate expectations by June 2025, 87percent of participants now expect the interest rate will be in the range of 10-14percent, compared to 18percent in the previous survey.
However previously 82percent of market participants expected the interest rate to be 14-18percent, but now only 9percent of participants hold that view. Moreover, 4percent of participants now expect the interest rate to be below 10percent.
The average inflation expectation has also fallen, with 81percent of participants now expecting average inflation to be up to 10percent. Of this 81percent, 53percent expect inflation to be in the range of 8-10percent, 26percent in the range of 6-8percent, and 2percent expect it to be below 6 percent.
Copyright Business Recorder, 2024