In a move welcomed by the business community, the SBP interest rate cut brought the policy rate down to 11% on May 5, 2025. The State Bank of Pakistan’s Monetary Policy Committee (MPC) made the decision following sharp declines in inflation and signs of economic stability.
Inflation at Historic Low
April’s inflation dropped to just 0.3%, thanks to falling prices of key food items like wheat, onions, potatoes, and pulses. A reduction in electricity and fuel charges also contributed to the drop. These factors, which heavily influence the Consumer Price Index (CPI), created room for the central bank to ease monetary policy.
Industry Pushes for Easing
Trade and industry sectors had long urged the central bank for a significant rate cut to revive economic activity. Their calls intensified after core inflation began showing signs of cooling, reaching 8.0% in April, down from a consistent 9% in previous months.
The MPC acknowledged that the inflation outlook had improved and that core inflation had softened, reflecting moderate demand and a favorable base effect.
Read: LoC Visit Exposes Ground Reality Amid Escalating Tensions
Economic Indicators Improve
The SBP also highlighted several positive developments. Pakistan posted a current account surplus of $1.2 billion in March, driven largely by record remittances. Real GDP growth for Q2-FY25 was estimated at 1.7%, while Q1 growth was revised to 1.3% from 0.9%.
Consumer and business confidence also showed improvement in recent surveys, although concerns remain over the growing shortfall in tax collection.
Global Challenges Remain
Despite local improvements, the MPC noted risks from global uncertainty. Rising trade tariffs and geopolitical tensions could disrupt supply chains and impact energy prices. The International Monetary Fund (IMF) has already revised down its growth outlook for major economies in 2025 and 2026.
While inflation is expected to gradually rise in the coming months, the SBP remains confident that the real interest rate is high enough to keep inflation within the 5%–7% target.
The MPC pledged to maintain a measured approach, keeping inflation in check while supporting sustainable growth.
Follow us on Google News, Instagram, YouTube, Facebook,Whats App, and TikTok for latest updates
