SBP Rate Cut Expected at January 26 MPC Meeting

Pakistan’s central bank is widely anticipated to implement a further reduction in its key policy rate at the forthcoming Monetary Policy Committee (MPC) meeting scheduled for January 26, 2026, with market participants forecasting a move that could return the rate to single-digit territory for the first time in several years.

Arif Habib Limited (AHL) has projected a 75 basis point (bps) cut, which would lower the State Bank of Pakistan’s (SBP) policy rate to approximately 9.75%, driven by sustained cooling in headline inflation, relative stability in the Pakistani rupee, manageable current account dynamics, softening global commodity prices, and a noticeable revival in domestic demand and industrial output.

The expectation follows the SBP’s unexpected 50 bps reduction last month, which brought the policy rate to 10.5% and marked a cumulative easing of approximately 1,150 bps since the commencement of the monetary policy cycle.

A recent market survey conducted by Topline Securities revealed strong consensus for additional easing at the upcoming meeting. Among the 80% of respondents anticipating a rate cut, 56.4% expect a 50 bps reduction, 15.4% foresee a 100 bps cut, 5% anticipate a modest 25 bps adjustment, and 3% project a 75 bps decrease. The remaining 20% expect no change.

Topline Securities observed that real interest rates, even after recent reductions, continue to remain elevated relative to historical averages, thereby providing room for further monetary accommodation.

While some analysts contend that favourable inflation trends and improving economic confidence could justify a more aggressive cut, others advocate a measured approach, citing persistent pressures from core inflation and lingering external sector vulnerabilities.