Market Expects SBP Rate Cut at January 26 MPC

A substantial majority of market analysts and participants anticipate a further reduction in the State Bank of Pakistan’s (SBP) policy rate at the inaugural Monetary Policy Committee (MPC) meeting of 2026, scheduled for January 26, 2026, according to the latest Monetary Policy Survey conducted by Topline Pakistan Research.

The survey reveals that 80% of respondents expect a rate cut at the forthcoming MPC session. Among those forecasting easing, 56.4% project a 50 basis points (bps) reduction, 15.4% anticipate a 100 bps cut, 5% expect a modest 25 bps adjustment, and 3% foresee a 75 bps move. The remaining 20% predict the policy rate will remain unchanged at its current level of 10.5%.

These expectations build on the SBP’s unanticipated 50 bps easing announced on December 15, 2025, where six of nine MPC members favoured moderation, two advocated a more aggressive 100 bps reduction, and one preferred to hold rates steady.

Topline Research attributes the shift in sentiment to softer-than-projected inflation prints in recent months, robust growth in remittance inflows bolstering the external account position, and relative stability in the PKR/USD exchange rate. On this basis, the firm forecasts a 50 bps cut to 10.0% at the January meeting.

The brokerage notes that real interest rates—calculated against average FY26 inflation—currently stand at approximately 350 bps, significantly exceeding the long-term historical norm of around 200 bps. Nonetheless, respondents expect the SBP to preserve comparatively high real rates to anchor sustainable medium-term growth.

Market pricing corroborates the easing bias: secondary market yields on six-month treasury bills and six-month Karachi Interbank Offered Rate (KIBOR) are trading 15–41 bps below the prevailing policy rate, while recent auctions of two- and three-year Pakistan Investment Bonds cleared at levels below the benchmark, signalling entrenched expectations of additional monetary accommodation.

For the medium term, Topline has revised downward its June 2026 policy rate projection to 9.5% (from a prior 11%). In the survey, 49% of participants envisage the rate at around 10% by June 2026, 46% anticipate a level below 10%, and only 5% expect it to remain at 10.5%.

On the inflation outlook, 77% of respondents project average FY26 inflation in the 5–7% band, with 16% forecasting 7–8%. Topline maintains its own estimate at 6.5–7.5%, while cautioning that persistent escalation in global oil prices represents a key upside risk.

Regarding the exchange rate, 64% of surveyed participants expect the rupee to trade between Rs280–285 per US dollar by June 2026, a range with which Topline concurs.