SBP set to reclaim single digit rates

January 23, 2026 (MLN): The State Bank of Pakistan (SBP) is expected to reveal a 75bps policy rate cut in its upcoming Monetary Policy Statement (MPS) on January 26, potentially bringing the benchmark rate down to 9.75%.

If implemented, the move would mark a long-awaited return to single-digit policy rates for the first time since March 2022, according to Arif Habib Limited.

The move is supported by easing inflation, a stable external account, improving industrial growth, and broad macroeconomic stability.

Inflation has moderated within the SBP’s 5–7% medium-term target range, averaging 5.11% in 1HFY26, down from 7.29% a year ago.

Core inflation has also eased sharply to 7.4% from 10.93%, showed a favorable environment for monetary easing.

While seasonal pressures, Ramadan, and Eid may temporarily increase inflation later in FY26, the overall trend is expected to remain benign, with an anticipated FY26 average of 6.7%.

Pakistan’s external account remains contained, with a $244m current account deficit in December and a 1HFY26 deficit of $1.17bn, compared to a surplus last year.

Strong SBP FX reserves of $ 16.1bn and timely external debt servicing have helped maintain stability in the PKR, which appreciated 1.3% against the USD in the first half of the fiscal year.

GDP growth for FY26 is projected at 3.7%, with industrial activity showing signs of recovery.

Large-scale manufacturing (LSM) expanded 6% YoY in 5MFY26, showing momentum in domestic demand.

Monetary easing at this stage is expected to act as a stabilizer, supporting continued growth without triggering overheating.

Lower interest rates would ease the fiscal burden of debt servicing, which stood at Rs1.18trn in 1QFY26.

Reducing markup payments gradually improves the fiscal position while supporting broader economic stability.

AHL’s recent survey shows 43.5% of market participants expect a 75bps cut, while 39.1% anticipate a 50bps reduction.

Market movements confirm this outlook: T-bill cut-off yields for 3M and 6M tenors have returned to single digits, last seen in November 2021, with the 3M at 9.90% and the 6M at 9.95%. Secondary market yields have fallen sharply across all tenors, reflecting a well-anchored easing bias.

With inflation easing, growth stabilizing, fiscal pressures moderating, and external accounts under control, a 75bps cut appears both reasonable and well-aligned with current macroeconomic conditions.

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