Pakistan’s central bank to reduce interest rate to 16% by end of 2024, predicts Fitch

International ratings agency Fitch Ratings has predicted that Pakistan’s central bank will reduce the benchmark interest rate to 16% from 20.5% by December 2024.

The State Bank of Pakistan (SBP) would continue to loosen the monetary policy in the long-run, reducing the rate to 14% by December 2025, it said in its country report on Pakistan.

Pakistan’s interest rate had been a record 22% till June amid soaring inflation.

But as inflation eased, the central bank cut the rate to 20.5% — the first reduction in four years.

Fitch forecasted that Pakistan’s economic growth would accelerate to 3.2% in FY25, lower than the government’s target of 3.6%. This growth would be driven by monetary easing, improved agricultural output, and slowing inflation.

The government was expected to miss its ambitious budget targets but the fiscal deficit would narrow to 6.7% of GDP compared to 7.4% in FY24, it said. The government’s target is 5.9%.

Fitch said the government was more successful at stabilising the rupee than it had expected and predicted that there would not be any “big falls” in the rupee’s value. It would weaken to Rs290 per dollar by the year’s end.

“The economic recovery is fragile and another shock would quickly push up the cost of servicing Pakistan’s large government debt burden,” it warned.

Commenting on the political situation, Fitch predicted that Pakistan Tehreek-e-Insaf (PTI) founder Imran Khan would remain in jail for the foreseeable future.

It also forecasted that the current coalition government led by the Pakistan Muslim League Nawaz (PML-N) would remain in power over the coming 18 months and would succeed in pushing through with International Monetary Fund-mandated fiscal reforms.

However, if the coalition government was ousted from power, it would be replaced by a military-backed technocratic administration instead of another elected one, it stated.