The State Bank of Pakistan (SBP) on Monday announced a 100 basis points cut in its benchmark interest rate, bringing it down to 11%—the lowest level in over two years—as inflation plummeted to a historic low of 0.3% in April. The decision, which takes effect immediately, marks a resumption of the central bank’s monetary easing cycle after it unexpectedly held rates steady in March.
The Monetary Policy Committee (MPC) attributed the rate cut to a sharp decline in food and energy prices, particularly wheat, onions, and electricity tariffs, which pushed April’s inflation far below market expectations. “Headline inflation has continued its downward trajectory, supported by lower food prices and recent adjustments in energy costs,” the SBP said in its statement. Core inflation also eased to 8% in April, reflecting subdued demand pressures.
The move was welcomed by trade and industry leaders, who had been advocating for aggressive rate cuts to reduce borrowing costs and stimulate economic activity. “This is a much-needed step to support businesses, especially SMEs, in these challenging times,” said Irfan Iqbal Sheikh, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI). “Lower interest rates will encourage investment and ease financial burdens on industries.”
However, analysts were divided on the decision. Mohammed Sohail, CEO of Topline Securities, called it a “bold move,” saying, “The SBP has taken a proactive stance by cutting rates more than expected, signaling confidence in the inflation outlook.” In contrast, Ali Khizar, Head of Research at Business Recorder, cautioned, “While lower inflation justifies some easing, global uncertainties—especially trade tensions and geopolitical risks—could reverse gains if not managed carefully.”
The SBP acknowledged external challenges, including rising trade tariffs and regional tensions, which could disrupt Pakistan’s economic recovery. The decision comes ahead of an IMF executive board meeting to approve the next 1 billion loan tranche under 7 billion bailout program. Moody’s Investors Service warned that escalating tensions with India could strain Pakistan’s fiscal position and external stability.
Despite these risks, the central bank expressed optimism, projecting inflation to stabilize within its 5-7% target range in the coming months. The current account surplus of $1.2 billion in March—driven by record remittances—and a slight uptick in GDP growth to 1.7% in Q2-FY25 provided additional support for the rate cut.
The rupee remained stable following the announcement, while the stock market showed muted reaction as investors weighed the implications of lower rates against global uncertainties. “The real test will be whether inflation remains subdued and the IMF program stays on track,” said Samiullah Tariq, Head of Research at Pak-Kuwait Investment Company.
With this cut, the SBP has now reduced rates by a cumulative 1,000 basis points since June 2024, when the policy rate stood at 22%. The central bank emphasized that further adjustments would remain data-dependent, particularly with risks looming from volatile commodity prices and potential energy tariff revisions.
Also read: Pakistan’s inflation hits record low at 0.3% in April 2025
