SBP Monetary Policy June 2025 Will Pakistan Cut Interest Rates
With the Pakistan economy at a crossroad, every body is looking up to the State Bank of Pakistan (SBP) as it is set to unveil its Monetary Policy on June 16, 2025. Having conflicting indications in inflation figures, international oil prices and geopolitical risks, analysts are split in deciding which policy rate the central bank will choose: to reduce or to keep things on hold.
Market Sentiment: Cautious Optimism for a Rate Cut
The latest poll by Topline Securities showed that 56 per cent of those in the market predict that the SBP will keep the policy rate unchanged, up form only 31 per cent in an earlier poll. On the same day, 44 percent of respondents expect at least 50 basis points (bps) reduction in the rate.
To put it in pieces:
19% look towards 50bps reduction.
25% are predicting a 100bps reduction
This reflects an increasing hope of improving the monetary conditions that has been cause by a mix of declining inflation, a steady exchange rate and better remittances.
SBP’s Current Policy Rate: Holding Steady at 12%
Last Monetary Policy Committee (MPC) meeting of the SBP was held on March 10, 2025, where the interest rate setting body decide to keep the policy rate unchange at 12 percent with a reason of cautious amidst volatility in global food and energy prices. In an attempt to aid recovery of the economy, the bank had already reduced the interest rate by 1,000bps, since a record high of 22% in June 2024.
Inflation Trends Support a Loosening Bias
The inflation data has continued to exhibit disinflationary trend, as April 2025 inflation fell to 0.3%, compared with 0.7% in March. Topline Securities expect the average inflation of 6-7% in FY26, which provides a real interest rate buffer of 400-500bps (assuming an 11% policy rate) comfortably above the historical average of 200-300bps in Pakistan.
This cushion of real rate gives the central bank the freedom to cut rates without causing macroeconomic instability.
Arguments for a Status Quo: Oil Prices & Tariff Hikes
Topline Securities feels that there is a possibility that the SBP could remain on the same rate as there is a scope to maneuver, because of:
The recovery of the international crude oil prices, which currently stand at around 68-70 dollars per barrel, on the back of rising tension in the Middle East and yet to be realize US-China trade agreement.
Anticipated increases in gas and electricity tariffs ahead of the new fiscal year, which may contribute to the future inflation.
Such uncertainties can compel the SBP to follow a wait-and-watch policy, particularly before the FY26 budget of Pakistan and the next $7 billion IMF bailout review, which will take place on May 9, 225.
AHL Forecasts a 50bps Cut
Arif Habib Limited (AHL) is of the view that the rate will be reduce by 50bps to take the policy rate to 11.5 percent, contrary to Topline. AHL contends that:
A decline in food prices as well as energy prices has resulted in lower inflation rates below the expectations.
It has a strong real interest rate buffer to permit a cautious reduction.
The cut would assist in growth of the economy, without affecting the macroeconomic stability.
IMF Review: A Deciding Factor?
The International Monetary Fund (IMF) may also influence the monetary policy decision of Pakistan, as it is planned to look at the program of $7 billion bailout. IMF has stressed on the need of monetary discipline, thanks in advance the impacts of the earlier rate cuts are still to be felt.
Any rate reduction before the IMF review may be a premature easing which could put in danger subsequent disbursements. In this light, the SBP may postpone any decisions to later behind this important milestone.
Geopolitical and External Headwinds Remain
The economic outlook of Pakistan is still threatened by global risks:
The tariffs imposed by the U.S. President Donald Trump on China and other countries might lead to recessionary pressures that would indirectly affect the exports and remittances inflows into Pakistan.
An increase in geopolitical tension mainly in the Middle East region is a hazard to oil importation invoices and inflationary stability.
Most central banks have assumed a cautious approach as a result of a volatile global financial environment, which prefers modest changes in rates.
Tresmark Poll: Traders Lean Toward No Change
In another Tresmark poll, 68 percent of traders are predicting no change in policy rate by the SBP, with 32 percent of the traders placing their bets on a policy rate reduction. This chimes with Topline results fairly closely, and indicates an increasing consensus behind policy continuity, at least in the short term.
Expert Opinions: Mixed Outlook
Saad Hanif, chief research officer at Ismail Iqbal Securities, cites core inflation and tariff changes as areas of concern that warrant taking things slow.
Hanif said the committee cited persistent dangers posed by high core inflation as well as possible rises in food and energy prices. The Reserve Bank should adopt a wait-and-watch attitude till inflationary tendencies become more foreseeable.
Potential for Future Rate Cuts in 2025
Despite the fact that the SBP may keep the current rate in June, economists agree that further easing is possible in H2 2025. The central bank is expected to reduce rates by as much as 200bps by the end of the year, particularly, if:
The inflation is still moving downwards.
The fiscal policy is still accommodative
International commodity prices become steady.
This would also provide a boost to the private sector credit, investments and consumer spending which would provide a much needed impetus to the economic recovery in Pakistan.
Conclusion: June 2025 Monetary Policy Could Go Either Way
The State Bank of Pakistan is in a critical juncture with its next Monetary Policy Committee meeting planned on June 16, 2025. On the one hand, declining inflation and sufficient real interest rates provide the scope of easing. Inexpressive global conditions, an upcoming fiscal choice, and the IMF review that is soon to take place, inform otherwise on the other.
Regardless of whether the SBP resorts to a 50bps reduction in the rate, a more aggressive 100bps cut, or holds the stance, the move will determine the economic policy of Pakistan in FY26.
With the anticipation of the central bank announcement by investors, businesses and policymakers, a single fact can be deciphered; the monetary environment in Pakistan is changing and flexibility is of the essence.
Sectoral Impact: How a Rate Cut Could Affect Pakistan’s Economy
In case the SBP resorts to reducing the rates during the June 2025 policy meeting, it will have a spillover impact on different realms of the economy. The reduced interest rates will decrease the cost of borrowing and this can trigger investment in main sectors such as construction, manufacturing and textile. The real estate developers can enjoy the lower cost of credit and the small and medium enterprises (SMEs) can get access to credit more easily. Lower rates could stimulate more consumer spending, especially on autos, housing and at the retail level which would boost business confidence and demand levels.
Investor Confidence and Stock Market Sentiment
A cut in policy rate usually serves as a constructive trigger to the equity market particularly in interest-rate delicate industries such as banking, cement, and consumer goods. In the past, rate reductions in Pakistan were followed by short-term gains in the Pakistan Stock Exchange(PSX) as market participants envisioned an increase in corporate profits because of the decrease in financing cost. Nevertheless, should the SBP leave rates on hold, then investors can become more defensive, awaiting more clarification on inflation, fiscal policy and management of the external account.
Forward Guidance and the Importance of Clear Communication
In addition to the rate decision itself, forward guidance will be important in anchoring expectations by the SBP. Certainty regarding the inflation expectations, exchange rate policy and communication with the fiscal authorities will assist in fixing the market sentiment on the central bank. Amid such uncertainty, caused by international tensions, domestic fiscal concerns, and negotiations with the IMF, the open communication of the SBP can help to lessen the volatility and increase the credibility of the policy. Whatever the SBP decides to do, namely, to maintain or to ease, markets will be keen on seeing what it could imply about the stance of monetary policy in the second half of 2025.
