According to a poll conducted by Pakistan’s leading
brokerage house, Topline Securities, 85% of the participants expect that the
central bank will announce a minimum rate cut of 200bps.
Out of these 63% expect the interest rate to be cut by
200bps, 30% expect a cut of 250bps, while 8% anticipate a cut of more than
250bps.
The brokerage house believes that the larger rate cut
expectations in the upcoming monetary policy meetings are driven by the
single-digit inflation reading of 6.9% in September 2024, which is expected to
continue in October 2024 within a range of 6.5% to 7.0%.
Significant fall in YoY inflation in recent months is on the
back of faster food disinflation and downward electricity prices adjustments
(FCA).
The brokerage house is also of the view that the SBP will
announce a rate cut of 200bps, similar to the cut of 200bps in the last
monetary policy meeting, taking total cut to 650bps.
This will be 4th consecutive cut of this cycle.
Post this rate cut of 200bps, real interest rates will
remain at +860bps, still higher than Pakistan’s historic average of 200-300bps.
In order to absorb any external and budgetary shock, the
brokerage house believes, Central bank will continue to keep positive real rate
in range of 300 to 400bps in medium terms over forward looking inflation.
6-minth KIBOR and 6-months T-Bills are down 324-359 bps from
last MPC meeting.
Falling inflation expectations, the 6M KIBOR and Treasury
bills rate are down 324-359bps since last monetary policy meeting on September 12,
2024 and currently hovering at 14.43% and 13.8%, respectively. This also
suggest, market participants are expecting a big rate cut in upcoming meetings.
The brokerage house expects policy rate to come down to 13%
by Jun 2025 with average inflation expectation of 7%for FY25.
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