KARACHI: Pakistan’s central bank on Monday cut its key policy interest rate by 50 basis points to 10.5 percent, resuming monetary easing after four consecutive meetings, in a move that surprised markets and came despite International Monetary Fund guidance to maintain an “appropriately tight” policy stance to anchor inflation expectations.
The decision by the State Bank of Pakistan (SBP) follows a year-long stabilization effort under an IMF Extended Fund Facility, during which authorities relied on tight monetary and fiscal policies to rein in inflation, rebuild foreign exchange reserves and stabilize the balance of payments after the country narrowly avoided default in 2023.
Most analysts had expected the central bank to hold rates steady. In a survey conducted by Karachi-based brokerage Arif Habib Limited ahead of the decision, 72 percent of respondents predicted no change, citing fading base effects in inflation and emerging external pressures, while only 28 percent anticipated a cut.
“The Monetary Policy Committee (MPC) has decided to decrease the policy rate,” the SBP said in a statement following the meeting of its rate-setting body in Karachi.
“While ensuring the ongoing price stability, the MPC noted the available space to reduce the policy rate to support sustainable economic growth.”
