• Experts diverge in the amount of early rates, companies demand a substantial reduction to revive the economy
• Some see the status quo after tomorrow’s meeting, since the war situation is expected to increase food prices
Karachi/Islamabad: Despite a long -term decrease in inflation and real interest rates greater than 11 percent, opinions on the probable decision of the State Bank of Pakistan (SBP) on the policy rate are divided, with commercial and industrial sectors that advocate a significant cut.
The researchers conducted surveys to measure the feeling of the market, but inflation of 0.3 percent in April has caused the division among those who trusted that there would be no interest rate changes.
The SBP monetary policy committee will meet Monday to establish the key interest rate for the next two months. The Central Bank had delivered a surprise by leaving its policy rate without changes in the last review, disappointing the business community, which demanded a substantial cut of at least 500bps. Many experts expected a slight cut of up to 50 bp.
However, once again, many experts believe that the SBP would reduce the rate by 50 bp. Some have also found reasons for a probable state, since they feel that the war situation between India and Pakistan has created uncertainty that prices can increase.
This situation can force the Central Bank to adopt a cautious approach to sudden clashes with greater inflation.
In a survey conducted by Topine Securities, 69pc of market participants expect a rate cut of at least 50 bp, while 31 % believe that the Central Bank will maintain the status quo.
“We believe that the Central Bank will keep the status quo at the next meeting,” the upper line said.
The April Consumer Price Index (CPI) is expected to be touched and registered below 0.50PC year after year to 0.29 percent. For complete FY25, inflation is expected to average between 4.5 and 5 percent, he added.
However, a survey conducted by Reuters shows that 14 analysts and investors, nine believe that the State Bank will maintain the rate without changes; Three await a 50 bp cut, while the two were waiting for a cut of 100 bp.
Due to continuous slowdown in inflation, it is generally believed in the financial sector that the interest rate should be reduced for two reasons: attract national investors, increase economic growth and reduce the real interest rate, now more than 11PC.
The State Bank has reduced interest by 1,000bps since June 2024 to 12 percent and kept it unchanged in March. The commercial circle requires more cuts to revive economic activities, but policy formulators seem caution, for fear of greater inflation in the coming months.
Some bankers believe that geopolitical tensions added uncertainty, which requires a cautious approach.
A TresMark survey (Global Currency Tracker) shows that 68 % of merchants do not expect changes in the monetary policy position. The CPI has collapsed at 0.3pc in April against 0.7pc in March and 17.3pc last year. The inflation of the nucleus has dropped to 7.4pc. A configuration of textbooks for a rate record is shaken by commercial risks, capital exits and a central bank that is correctly cautious, he said.
“More than $ 225 million have come silently from bonds and shares in April. A cut could expand the exit door,” said TresMark’s report.
“That said, the growth story is buried. Export-to GDP continues to fall. The FDA is flaccid. If there has ever been a case for monetary stimulus, now.
Companies require an important cut
Meanwhile, the leader of the United Business Group has strongly criticized the regime of high interest rates and said that the benefits of low inflation should be reflected in the decision of the SBP policy rate.
Central Member Core Committee United Business Group (FPCCI) Ahsan Zafar Bakhtawari said that inflation of 0.3 percent in April had created a land to reduce the interest rate by 400bps to 8pc and reduce the electricity tariff to RS26 per unit to provide real relief to the economy.
“When inflation has fallen to such a low level, reducing the policy rate to a single digit is economically logical and essential for the coherence of politics,” he said when heading to a meeting of the business community in Islamabad on Saturday.
“Reducing the interest rate to 8PC would stimulate investment, lower indebted costs and accelerate economic activity,” he said.
At the same time, the business community expressed serious concerns about high electricity rates, which harmed industrial production and tightened the purchasing power of common consumers.
The business community warned that if this opportunity does not take advantage, the country could face industrial stagnation, unemployment and economic slowdown despite the temporal fall in inflation.
The Rawalpindi Chamber of Commerce and Industry (RCCI) also urged the SBP to reduce its policy rate to a single digit to stimulate industrial activity and boost sustainable economic growth.
The president of RCCI, Usman Shaukat, emphasized that the current interest rate is significantly hindering business growth and should be reduced.
“Pakistan currently maintains the highest interest rates in the region,” Shaukat said in a statement.
Posted in Dawn, May 4, 2025
