Pakistan’s real interest rate among highest in the region

The inflation is easing, but for investors and businesses, the key factor is not just the inflation rate itself—it is the expectation of monetary policy decisions that depend on it.

A comparison of real interest rates across South Asia, defined as the difference between the policy rate and inflation, shows that Sri Lanka has the highest real interest rate in the region at 12.2%.

Pakistan follows with a real interest rate of 10.5%, while Bhutan's policy rate stands at 6.38% against an inflation rate of 3.12%.

According to analysts, a positive real interest rate gives central banks room to adopt an expansionary monetary policy or cut the benchmark interest rate.

Given Pakistan’s high real interest rate, there is a strong possibility that the central bank will maintain its expansionary stance and further reduce the policy rate.

Moreover, industrialists argue that interest rates in the double digits are still stifling economic activity. The negative growth in large-scale manufacturing is evidence that the 10% rate cut since June 2024 has not been sufficient to revive the sector, which continues to struggle with high energy costs.