SBP
In a move widely anticipated by trade and industry sectors, the State Bank of Pakistan (SBP) announced on Monday that it has cut the policy rate by 100 basis points, bringing it down to 11 percent. This marks the sixth reduction since June 2024, when the interest rate stood at 22 percent.
The latest cut underscores the central bank’s shift towards monetary easing, following signs of sustained disinflation in recent months.
The Monetary Policy Committee (MPC) of the SBP cited a significant drop in inflation for the decision. According to the central bank, April’s inflation clocked in at just 0.3 percent—well below market expectations. The decline was largely driven by a high base effect from the previous year and a reduction in prices of key food staples such as wheat, onions, potatoes, and pulses.
Additionally, lower electricity and fuel charges contributed to the subdued inflation figures. These items carry considerable weight in the Consumer Price Index (CPI), making even slight price changes impactful.
Prior to the announcement, opinions among economists and market analysts were split. While many expected a modest 50bps cut, others predicted a status quo, citing geopolitical tensions—particularly the war-like scenario between Pakistan and India—that could trigger inflationary pressures.
Despite these concerns, the SBP opted for a bold 100bps reduction, signaling confidence in the ongoing disinflationary trend.
The business community had been vocal in its calls for a rate cut, arguing that elevated borrowing costs were stifling investment and industrial activity.
The SBP had previously disappointed expectations in March by holding the policy rate steady. However, the latest decision may restore confidence among investors and industrial stakeholders.
The MPC’s latest decision sets the interest rate for the next two months, during which further clarity on inflation trends and geopolitical developments may shape the SBP’s monetary policy outlook.
