Pakistan’s central bank is set to announce its first monetary policy decision of the year today, with markets largely expecting a further cut in the key interest rate as inflation shows signs of easing and external conditions improve.
The Monetary Policy Committee of the State Bank of Pakistan is meeting on Monday to review economic conditions and decide on the policy rate. At its previous meeting on December 15, the committee surprised markets by lowering the rate by 50 basis points to 10.5 percent.
Since then, expectations for additional easing have grown stronger. Analysts point to softer inflation, improved foreign exchange inflows and a stable rupee as key factors supporting a rate cut.
Arif Habib Limited expects the central bank to reduce the policy rate by 75 basis points, which would bring it down to 9.75 percent and return it to single-digit levels for the first time in years. Topline Securities also sees a cut as likely, saying its recent survey showed that 80 percent of respondents were expecting a reduction.
According to Topline, recent inflation readings have come in lower than anticipated, while remittances have remained strong and the rupee has held steady against the US dollar. Bond yields have also declined, adding to expectations of monetary easing.
A Reuters poll reflects a similar outlook. Of the 10 analysts surveyed, seven expect a 50 basis points cut, two see a deeper 75 basis points reduction, and one expects rates to remain unchanged. Analysts cited easing inflation, stronger foreign exchange buffers and a stabilising rupee, though they noted that some economic risks remain.
Business leaders have also stepped up calls for lower interest rates. Saqib Fayyaz Magoon, Chairman of the Businessmen Panel Progressive and Senior Vice President of the Federation of Pakistan Chambers of Commerce and Industry, said high borrowing and energy costs were hurting industrial output and exports. He urged the government to use the improving inflation outlook to lower financing costs and called for a cut of at least 100 basis points.
Recent data shows mixed but broadly supportive trends. Headline inflation stood at 5.6 percent year-on-year in December 2025, in line with official estimates. The rupee has appreciated slightly since the last policy meeting, while petrol prices have fallen by 4 percent. However, international oil prices have risen by more than 7 percent and are hovering near $61 per barrel.
Pakistan’s current account recorded a deficit of $244 million in December 2025, following a small surplus in November. Meanwhile, SBP-held foreign exchange reserves rose to $16.09 billion as of January 16, with total liquid reserves at $21.26 billion.
Read next: SBP cuts policy rate to 10.5%, defying market expectations
