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 Point 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.
