Pakistan's central bank is widely expected to cut its key interest rate next week by 100 basis points after holding it at a record 22% for seven straight policy meetings, according to a Reuters poll of market watchers. The central bank will meet on Monday, a week after Pakistan posted its lowest consumer price index (CPI) reading in 30 months at 11.8% in May - lower than most projections. The decision will come days before Pakistan's annual budget. The median estimate in a Reuters poll of 16 analysts predicts the State Bank of Pakistan (SBP) will cut rates by 100 basis points (bps).

Ten analysts are forecasting a 100 bps cut, one analyst expects a 150 bps cut, four expect a 200 bps cut. One respondent expected the bank to hold rates again. Pakistan's Finance Minister Muhammad Aurangzeb, speaking at a business conference in China on Wednesday, said he expected rates to come down in the face of falling inflation.

Economic activity has been slow in Pakistan for the last two years as it implemented tough reforms under an International Monetary Fund (IMF) bailout in a bid to stabilise its crashing economy. GDP growth was expected to be at 2% in the current financial year, which ends in June, and was negative in the previous year. The government says it will target 3.5% this year as it expects an uptick in economic activity.

The government will formally approach the IMF for a new longer term bailout this summer after completing a short term programme earlier this year that helped it avoid a default. The lender had previously stressed the importance of keeping a tight monetary policy to control inflation, which remained above 20% since May 2022 and hit a record high last year at 38%. Inflation has since slowed, and came in at below 20% in April and 11.8% in May. "Given the sustained decline in inflation and the fact that SBP showed prudence by not prematurely cutting rates, it now has the space to cut without risking things with the IMF," said Uzair Younus, an economic analyst.

However, Fawad Basir, Head of Research at KTrade, said tax reforms being considered in the budget may have a far reaching impact on the economy and not just inflation. "Once the impact of such decisions is evident in the high frequency data sets, followed by successful negotiation with the IMF, then the SBP will be in a good position to start the dovish stance possibly coinciding with U.S. Fed strategy," he said. # Name/ Organization Expectation 1. AKD Securities -150 2. Al Habib Capital Markets -100 3. Ammar Habib -200 4. Arif Habib Limited -200 5. EFG Hermes -200 6. FRIM Ventures -100 7. Ismail Iqbal Securities -100 8. JS Capital -100 9. KTrade 0 10. Lakson Investment -100 11. Pak Kuwait Investment Company -200 12. Providus Capital -100 13. SCS Trade -100 14. Topline Securities -100 15. Uzair Younus -100 16. Vector Securities -100 Median -100 (Reporting by Ariba Shahid in Islamabad; Editing by Lincoln Feast and Ros Russell)