KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday decided to keep the policy rate unchanged at 12 per cent, citing concerns over inflation volatility despite a recent decline in food and energy prices.
“At its meeting today, the Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 12 percent,” the central bank stated in its announcement.
“The committee noted that inflation in February 2025 turned out lower than expectation, mainly due to a drop in food and energy prices,” it said.
“Notwithstanding this decline, the committee assessed the risks posed by the inherent volatility in these prices to the current declining trend in inflation.
At the same time, core inflation is proving to be more persistent at an elevated level and thus uptick in the food and energy prices may lead to an increase in inflation,” the SBP added.
The MPC noted that economic activity continues to gain traction, as reflected in the latest high-frequency economic indicators.
“Moreover, the MPC viewed that some pressures on the external account have emerged due to rising imports amidst weak financial inflows,” the statement read.
“On balance, the MPC assessed the current real interest rate to be adequately positive on forward-looking basis to sustain the ongoing macroeconomic stability,” it further said.
Market Expectations
Most market analysts had anticipated that the central bank would maintain its monetary easing approach, as the declining inflation rate has fueled expectations for a seventh consecutive rate cut.
“We believe the central bank has room for a 50-100bps cut in the future. However, a 50bps cut is more likely in the upcoming Monetary Policy Committee (MPC) meeting,” said Waqas Ghani, Head of Research at JS Global.
Similarly, Saad Hanif, Head of Research at Ismail Iqbal Securities, noted that the central bank was expected to take a cautious approach.
“We anticipate a potential 50bps cut in the policy rate during the upcoming MPC,” he stated.
Arif Habib Limited (AHL), another brokerage, forecasted that the State Bank of Pakistan (SBP) would continue its rate-cutting cycle with a 50bps reduction in the upcoming monetary policy review, lowering the policy rate to 11.5%.
“Given the sharp drop in inflation and stable reserves, a 50bps rate cut appears to be a logical step in the forthcoming policy meeting,” AHL noted.
In contrast, analysts at Topline Securities believed that the central bank would maintain the current rate in the next meeting.
Topline attributed the decision to several factors, including the IMF review and the depreciation of the Pakistani Rupee (PKR).
At its last meeting, the MPC cut the key interest rate by 100bps, in line with market expectations.
The MPC at the time observed that “a cautious monetary policy stance is needed to ensure price stability, which is essential for sustainable economic growth.
In this regard, the MPC assessed that the real policy rate needs to remain adequately positive on a forward-looking basis to stabilise inflation in the target range of 5-7%.”
