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Pakistan's central bank cuts benchmark interest rate by 100 basis points

This is the sixth cut in a row, which has brought it to a nearly three-year low

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The State Bank of Pakistan (SBP) cut the benchmark interest rate by 100 basis points (bps) or one percentage point to 12% on Monday.

The cut, which is the sixth in a row, was in line with expectations — a survey of over a dozen brokerage houses conducted by Nukta last week revealed that all participants anticipate a 100bps cut.

With the latest cut, the policy rate is at an almost three-year low.

The SBP started the monetary easing cycle in June last year with a 150bps cut as inflation, which had reached a record high of 38% the previous year, began to ease.

Since then, it has reduced the interest rate by a cumulative 1,000 bps, including 850bps in fiscal year 2024-25.

Inflation in Pakistan is on a significant downward trend, with headline inflation projected to ease to 3.06% in January, marking the lowest level in nine years. It is expected to remain below 5% through April, driven by a favorable base effect.

However, a reversal is likely in May and June, with projections rising to 8.81% and 8.97%, respectively, as the base effect dissipates after the first quarter of 2025.

The sharp decline in inflation is attributed to several key factors, including a high base effect, stability of the Pakistani Rupee (PKR) against the U.S. Dollar (USD), and subdued prices in the food and energy sectors.

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