Key Points
- The State Bank of Pakistan cuts the policy rate, defying market expectations of no change
- The policy rate had been held at 11% since May 2025
- Headline inflation stood at 6.1% YoY in November 2025
- Pakistan posted a current account deficit of $112 million in October, while total liquid foreign reserves rose to $19.61 billion
- Oil prices fell by over 6% since the last MPC meeting, hovering around $57 per barrel, easing inflationary pressures.
KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday cut the key policy rate by 50 basis points (bps) to 10.5%.
Market experts had widely expected the central bank to maintain the status quo. However, the MPC decided to cut the policy rate by 50 basis points to 10.5%, effective December 16, 2025.
At its previous meeting on October 27, 2025, the MPC had kept the policy rate unchanged at 11%, citing that the impact of the recent floods on the broader economy was lower than initially anticipated.
Ahead of the final MPC meeting of 2025, industrialists had urged the State Bank of Pakistan to reduce interest rates.
📢 Monetary Policy Committee has decided to decrease the policy rate by 50 basis points to 10.5 percent w.e.f. December 16, 2025.#SBPMonetaryPolicy
— SBP (@StateBank_Pak) December 15, 2025
Arif Habib Limited (AHL) anticipated no change in the policy rate, “maintaining stability while adopting a cautious stance as the base effect that had been keeping headline inflation low is now fading”.
“The slight widening of the current account deficit and the early stage of domestic economic recovery further support a prudent, wait-and-see approach from the central bank,” said AHL.
Topline Securities said that the slashed policy rate was a “surprise”, as they expected the rates to remain unchanged.
Topline Economy Alert
Dec 15, 2025Central Bank (SBP) has reduced the policy rate by 50bps to 10.5% in today’s Monetary Policy Committee (MPC) meeting. This came as a surprise in our view as majority of the participants were expecting rates to remain unchanged.
In last 4…
— Topline Securities Ltd (@toplinesec) December 15, 2025
The last cut in the policy rate was announced in May, after which the benchmark rate remained unchanged at 11 per cent, even as headline inflation fell to 3 per cent earlier this year. Inflation edged up slightly in November, registering at 6.1 per cent compared to 6.2 per cent in October.
The International Monetary Fund (IMF) advised maintaining a tight liquidity stance to contain anticipated inflationary pressures.
In its second review released on Thursday, the Fund stated that monetary policy should remain “appropriately tight and data-dependent” to keep inflation expectations anchored. It noted that the State Bank of Pakistan (SBP) had maintained positive real interest rates on a forward-looking basis.
The IMF added that the restrictive policy stance had played a crucial role in bringing inflation down and should be sustained to ensure price stability and support the rebuilding of external buffers.
On the international front, oil prices have declined by more than 6 per cent since the last MPC meeting and are currently hovering around $57 per barrel.
Pakistan’s headline inflation stood at 6.1 per cent on a year-on-year basis in November 2025, according to data released by the Pakistan Bureau of Statistics (PBS).
Meanwhile, the country recorded a current account deficit of $112 million in October 2025, as per figures published by the State Bank of Pakistan (SBP).
SBP-held foreign exchange reserves increased to $14.58 billion as of December 5, 2025, the central bank said.
Net foreign reserves held by commercial banks amounted to $5.03 billion, bringing Pakistan’s total liquid foreign reserves to $19.61 billion.
