KARACHI: The State Bank of Pakistan (SBP) on Monday slashed its benchmark policy rate by 100 basis points to 11%, marking its most aggressive cut in the current easing cycle and bringing the rate to its lowest level since March 2022.
The decision by the Monetary Policy Committee (MPC) exceeded market expectations, with most analysts forecasting a more modest 50bps reduction or a hold. The central bank has now cut the policy rate by a total of 1,100bps since June 2024, when it stood at a record high of 22%.
The MPC cited a sharp deceleration in inflation — particularly in March and April — as a key reason for the larger-than-expected cut. It noted reductions in electricity prices and food inflation, especially wheat, as major contributing factors. Headline inflation eased to 0.3% year-on-year in April, while core inflation dropped to 8% from around 9% in previous months.
Despite the improved inflation outlook, the MPC flagged external risks, including global tariff uncertainty and geopolitical tensions, which could impact economic stability. “The Committee emphasized the importance of maintaining a measured monetary policy stance,” the SBP said.
On the economic front, provisional GDP growth for Q2 FY25 was recorded at 1.7% year-on-year, while Q1 growth was revised up to 1.3%. March’s current account posted a surplus of $1.2 billion, driven by strong remittance inflows, helping to stabilise foreign exchange reserves.
The central bank reiterated that the real interest rate remains “adequately positive” and inflation is expected to gradually rise but stay within the 5–7% target range, subject to risks from food price volatility, energy adjustments, and global commodity trends.
Market reactions were mixed. While some analysts had anticipated the central bank to hold rates steady due to IMF programme considerations and uncertain foreign inflows, others saw room for easing amid sustained disinflation and moderate domestic demand.
The policy rate cut takes effect from May 6, 2025.
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