The State Bank of Pakistan (SBP) has announced a 50-basis-point cut in the policy rate in its final monetary policy decision of the current year, signaling a cautious shift as inflation shows signs of control.
The State Bank has issued its last monetary policy of the current year, reducing the policy rate by 50 basis points. As a result, the base interest rate has been lowered from 11% to 10.5%, according to the central bank.
This marks the first rate cut after a prolonged period of policy stability. The interest rate has been cut by half a percentage point after seven months.
The decision was taken during a monetary policy meeting after a detailed review of key economic indicators, the State Bank said. Officials cited improved inflation trends as a key reason for adjusting the policy stance.
The move reflects a shift away from continuously maintaining high interest rates.
Policy rate timeline
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December 2024: Policy rate set at 13%
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January 2025: Reduced to 12%
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March 2025: Maintained at 12%
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May 2025: Further reduced to 11%
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June 2025: Maintained at 11%
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July 2025: Maintained at 11%
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September 2025: Maintained at 11%
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October 2025: Maintained at 11%
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December 2025: Reduced to 10.5%
The State Bank of Pakistan has cut the policy rate by 0.5 percentage points after maintaining it at 11% for seven months, reflecting a cautious shift toward monetary easing.
Inflation under control, policy stance adjusted
The State Bank acknowledged that inflation has come under control, prompting a change in its long-standing tight monetary policy. Previously, the central bank had kept the interest rate unchanged at 11% for four consecutive policy decisions.
This easing suggests growing confidence in macroeconomic stability.
With the reduction in the policy rate, bank loans for businesses and industries have become cheaper. Analysts say the cut may provide some relief to the private sector by lowering borrowing costs and supporting economic activity.
However, the reduction remains modest compared to market expectations.
Experts point to IMF influence
Economic experts say the State Bank’s tight monetary policy remains influenced by the IMF program, limiting the pace of rate cuts. Despite the reduction, the policy rate is still around five percentage points higher than the current inflation rate of 5.5%, analysts noted.
This gap indicates continued caution by the central bank.
The business community has repeatedly demanded a cut to single-digit interest rates as inflation declines. However, experts say the State Bank has once again ignored these demands, opting for a gradual approach.
Despite the government’s desire, analysts believe interest rates could not be brought to single digits in 2025, reflecting fiscal and external constraints.
