Karachi: In light of the ongoing trend of decreasing inflation, it is highly likely that the State Bank will reduce its key policy rate (interest rate) by 1 to 1.5 percent in the monetary policy meeting scheduled for Thursday, September 12.
With inflation moving into single digits, there is significant room for a reduction in the interest rate. Saad Hanif, Research Head at Ismail Iqbal Securities, stated that the State Bank will maintain a cautious approach.
Given the context of the IMF program, the bank is expected to prefer a gradual reduction rather than a substantial cut in the interest rate.
Another reason for this cautious approach is that a large reduction in the policy rate could decrease the country’s foreign exchange reserves, leading to a depreciation of the rupee.
Hanif estimated that the State Bank will likely reduce the interest rate by only 1 percent.
Tahir Abbas, Research Head at Arif Habib Limited, anticipated a reduction of 150 basis points in the policy rate, which would bring it down to 18 percent, the level last seen in February 2023.
According to a survey conducted by Topline Securities, Deputy Head of Research Shankar Talreja reported that 59 percent of respondents expected a 150 basis points cut in the policy rate, 19 percent anticipated a 200 basis points reduction, and 5 percent predicted a reduction of more than 200 basis points.
Meanwhile, 13 percent expected a reduction of 100 basis points, and 2 percent expected a 50 basis points cut. Talreja himself anticipated a 150 basis points reduction.