Pakistani Rupee Strengthens, Inflation Declines; Path Opens for Further Interest Rate Cuts

Karachi: The strengthening of the Pakistani rupee, declining inflation, and improving economic indicators have paved the way for a possible reduction in interest rates.

According to a survey conducted by a research firm, the State Bank of Pakistan is set to announce its first monetary policy of the year on January 26, with expectations of a cut in the policy rate. Around 80% of survey participants believe the central bank will lower interest rates.

The survey indicates that 56% of participants anticipate a 50 basis points reduction, while 15% expect a 1% cut. Meanwhile, 20% foresee no change, 5% predict a 25 basis points reduction, and 3% expect rates to drop by 75 basis points in the upcoming policy.

Previously, the Monetary Policy Committee had reduced the interest rate by 50 basis points on December 15. Survey results show that 49% of participants believe the rate will remain at 10% until June 2026, while 46% expect it to fall below 10% by then.

The report highlights that the rupee’s continuous appreciation, increased remittances, and falling inflation could allow the policy rate to be reduced from 10.5% to a lower level.