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THE State Bank has surprised the market by slashing its policy rate by 50 basis points to 10.5pc. The move is underpinned by its assessment that the inflation outlook remains broadly unchanged. Benign global commodity prices and well-anchored inflation expectations, supported by a prudent monetary policy stance, have provided the necessary ‘space’ for easing.
Most financial analysts had, however, pushed back rate-cut forecasts to the later part of the second half of FY26 following the IMF’s warning that inflation risks persisted and policy must stay “appropriately tight and data-dependent” to keep expectations anchored. The Fund expects inflation here to temporarily accelerate 8-10pc — above the SBP target range of 5-7pc — this fiscal before stabilising. In the second review of its $7bn facility, the lender had stated that the tight stance had been pivotal in reducing inflation and should be maintained to ensure price stability and support the rebuilding of external buffers.
The SBP held its policy rate unchanged at 11pc for nearly seven months, after cutting it by 1,100bps between June 2024 and May 2025 as inflation fell sharply from a record high of over 38pc in 2023. The rate cut comes after the national coordinator of the SIFC had called for a reduction in borrowing costs to reflect the true picture of inflation to boost investment in the economy and accelerate growth.
