Pakistan’s central bank is expected to announce another interest rate cut during its upcoming policy meeting on Thursday, analysts predict. This follows a significant decline in inflation, which dropped to single digits in August for the first time in nearly three years.

TWO CONSECUTIVE RATE CUTS FOLLOWED RECORD-HIGH LEVELS

The expected rate cut would mark the third consecutive reduction after two previous cuts of 150 basis points in June and 100 bps in July. These cuts brought the interest rate down from an all-time high of 22% to the current 19.5%.

According to a poll of 14 analysts, all respondents anticipate another cut, with two analysts forecasting a reduction of 100 bps, 10 expecting a 150 bps cut, and two predicting a deeper 200 bps cut.

IMF AGREEMENT AND NEW BUDGET BOOST EXPECTATIONS

July’s rate cut came after Pakistan reached a staff-level agreement with the International Monetary Fund (IMF) and introduced a new state budget aimed at achieving ambitious tax and revenue targets. These developments have fueled expectations of further easing of the monetary policy.

In an interview with Reuters in August, Jameel Ahmed, the central bank’s governor, said that the recent rate cuts had achieved the “desired effect.” He emphasized that inflation was continuing to slow and the country’s current account remained stable despite the reduction in interest rates.

FIRST SINGLE-DIGIT INFLATION READING IN THREE YEARS

In August, Pakistan’s consumer price inflation dropped to 9.6%, marking the first single-digit inflation figure in nearly three years. This has provided further room for the central bank to consider additional rate cuts, according to analysts.

Ammar Habib, an economist who predicted a 200 bps cut, argued that real interest rates, currently at around 10%, are at their highest level in three decades. He added that risks to inflation remain low, especially given the softening of global commodity prices and the government’s prudent fiscal approach.

“Given these factors, a 200-bps cut seems appropriate without significantly affecting foreign exchange expectations,” said Habib.

ANALYST PREDICTIONS AHEAD OF THE POLICY MEETING

Below is a list of expectations from various analysts and institutions regarding the upcoming rate cut:

Name/OrganizationExpected Cut (bps)
AKD Securities-150
Al Habib Capital Markets-150
Ammar Habib-200
AWT Investments-150
Arif Habib Limited-150
EFG Hermes-150
Ismail Iqbal-100
JS Global Capital-150
KTrade-150
Lakson Investment-150
Pak Kuwait Investment Co-150
SCS Trade-200
Topline Security-150
Uzair Younus-100
Median-150
ALI

ALI

Experienced Senior Research Analyst

SIKANDER RAZA

SIKANDER RAZA

Sikander Raza, a Senior Technical Analyst

HAMZA SALEEM

HAMZA SALEEM

Hamza Saleem, a Senior Business Analyst

IRSA

IRSA

Irsa Sajjad, as a Research Analyst for Equities

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