KARACHI: A large majority of market participants expect the State Bank of Pakistan (SBP) to cut interest rates at its first Monetary Policy Committee (MPC) meeting of 2026, according to a Monetary Policy Survey conducted by Topline Pakistan Research.
The survey shows that 80% of respondents anticipate a rate cut when the MPC meets on January 26, 2026. Of those expecting a cut, 56.4% foresee a reduction of 50 basis points, 15.4% expect a 100bps cut, 5% see a 25bps cut, and 3% anticipate a 75bps move. The remaining 20% expect no change in the policy rate.
The expectations follow the SBP’s surprise 50bps rate cut announced on December 15, 2025, when six of nine MPC members voted in favour of easing, two supported a larger 100bps cut, and one opted for no change.
Topline Research attributed the change in market sentiment to lower-than-expected inflation readings over the past two months, stronger remittance inflows supporting the external account, and broadly stable PKR/USD parity. Based on these factors, Topline expects the SBP to reduce the policy rate by 50bps to 10.0% at the upcoming meeting.
The research firm highlighted that real interest rates, based on average FY26 inflation, are currently around 350bps, well above the historical average of 200bps. However, analysts expect the central bank to maintain relatively elevated real rates to support sustainable economic growth.
Market signals are also pointing towards monetary easing. Secondary market yields on six-month treasury bills and six-month KIBOR are trading 15–41bps below the current policy rate of 10.5%, while recent Pakistan Investment Bonds auctions for two- and three-year tenors cleared below the benchmark rate, indicating investor expectations of further cuts.
Looking beyond the January meeting, Topline has revised its interest rate forecast for June 2026 to 9.5%, down from an earlier estimate of 11%. In its poll, 49% of respondents expect the policy rate to be around 10% by June 2026, 46% see it falling below 10%, and 5% expect it to remain at 10.5%.
On inflation, 77% of participants expect average inflation to remain in the 5–7% range in FY26, while 16% see it at 7–8%. The brokerage firm maintained its inflation forecast at 6.5–7.5%, noting that any sustained rise in global oil prices could pose upside risks.
For the exchange rate, 64% of respondents expect the rupee to trade between Rs280–285 per dollar by June 2026, with Topline also projecting the currency in the same range.
