Market analysts are increasingly optimistic that the State Bank of Pakistan (SBP) will deliver another interest rate cut at its upcoming Monetary Policy Committee (MPC) meeting on January 26, potentially pushing the policy rate back into single-digit territory for the first time in recent years.
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The current policy rate stands at 10.5% following a surprise 50 basis points (bps) reduction in December 2025, marking a cumulative easing of 1,150 bps from the peak of 22%.
This would represent the sixth consecutive rate cut aimed at supporting economic recovery while maintaining price stability.
Analyst Forecasts and Market Expectations
Arif Habib Limited (AHL) anticipates a 75bps cut, bringing the rate down to 9.75%, which would firmly return it to single digits. Analysts noted that current macroeconomic conditions strongly support such a move.
A survey by Topline Securities revealed that 80% of participants expect a rate cut, with 56.4% predicting 50bps (to 10.0%), 15.4% forecasting 100bps, and smaller shares for 25bps or 75bps. Only 20% expect rates to remain unchanged.
Topline Securities itself projects a 50bps reduction, citing stable external indicators and moderating inflation.
Key Drivers Behind the Expected Cut
Inflation has eased notably, with December CPI at 5.6% year-on-year, below expectations and within the SBP’s target range. Real interest rates remain elevated at around 350bps, above the historical average, providing room for further easing.
Other supportive factors include stable currency parity, manageable current account, improved remittance inflows, and declining international commodity prices, particularly oil.
The external account remains resilient, and domestic demand along with industrial activity shows signs of pickup.
Implications for Economy and Growth
A rate cut is seen as essential to nurture growth without risking macroeconomic stability. Analysts emphasize that fiscal pressures also demand relief through lower borrowing costs.
If conditions remain favourable, even bolder cuts could be possible in subsequent meetings, with some projections eyeing rates as low as 9.5% by mid-2026.
The decision will balance ongoing disinflation with the need to stimulate sustainable economic activity.