Pakistan’s central bank, the State Bank of Pakistan (SBP), announced a 100 basis points cut in its key policy rate, bringing it down to 12%. This marks the sixth consecutive reduction since June 2024 as inflation continues to ease and the country aims to boost economic and business sentiment.
The SBP has reduced rates by a total of 1,000 basis points from the record-high 22% set in June 2024. This aggressive move is among the most significant by emerging market central banks, surpassing the 625 bps cuts made during the COVID-19 pandemic in 2020.
The Monetary Policy Committee (MPC) cited a continued downward trend in inflation, which fell to 4.1% year-on-year in December, driven by moderate domestic demand and favorable supply-side conditions. However, core inflation remains elevated despite showing signs of easing.
Pakistan’s economy has seen gradual recovery, with GDP growing by 0.92% in the first quarter of fiscal year 2024-25, supported by the central bank’s accommodative monetary policy. Analysts expect further economic stabilization as the impact of rate cuts continues to unfold.
The reduction aligns with the SBP’s goal of sustaining economic activity while managing inflation, which hit a multi-decade high of 40% in May 2023 before sharply declining.
