KARACHI: The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) on Monday reduced the key policy rate by 100 basis points to 11 percent, effective 6 May 2025. This marks the seventh consecutive rate cut since June 2024, when the policy rate stood at a record high of 22 percent.
“At its meeting today, the Monetary Policy Committee (MPC) decided to cut the policy rate by 100 bps to 11 percent, effective from May 6, 2025,” the MPC said in a statement on Monday.
This is the lowest policy rate since March 2022. The central bank had cut the rate by 1,100bps since June from an all-time high of 22 percent.
In its statement, the MPC noted that inflation declined sharply during March and April, mainly due to a reduction in administered electricity prices and a continued downtrend in food inflation.
“Core inflation also declined in April, primarily reflecting favourable base effects amidst moderate demand conditions,” it said.
“Overall, the MPC assessed that the inflation outlook has improved further relative to the previous assessment,” read the statement.
“At the same time, the Committee viewed that the heightened global uncertainty surrounding trade tariffs and geopolitical developments could pose challenges for the economy. Against this backdrop, the MPC emphasised the importance of maintaining a measured monetary policy stance,” it added.
The central bank also expressed optimism that foreign exchange reserves are expected to rise to $14 billion by June 2025.
Additionally, the committee appreciated the recent legislation to enhance the collection of agricultural income tax.
“A sharp decline in wheat and allied product prices, moderation in global commodity prices and downward adjustment in electricity tariffs were the major drivers of this ease in food and energy prices.
“These factors also contributed to the moderation in inflation expectations of consumers,” it said.
SBP observed that core inflation, after remaining sticky at around 9 percent over the past few months, declined to 8 percent y/y in April.
“Going forward, the Committee anticipates inflation to gradually inch up in the coming months and stabilise within the target range of 5–7 percent.
“This outlook is, however, subject to both upside and downside risks emanating from volatility in wheat and other food prices, timing and magnitude of energy price adjustments, potential global supply-chain disruptions and uncertain commodity price outlook.”
At its last meeting, The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 12 per cent, citing concerns over inflation volatility despite a recent decline in food and energy prices.
Market Expectations
Market experts remain divided over the State Bank of Pakistan’s (SBP) next monetary policy move. Arif Habib Limited (AHL), a leading brokerage firm, anticipated 50 basis points (bps) cut in the key policy rate, bringing it down to 11.5 percent.
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In its report, AHL cited the ongoing disinflationary trend and a comfortable real interest rate buffer as reasons for a cautious rate reduction. The firm argued that a moderate cut would help stimulate economic growth without jeopardizing macroeconomic stability.
Conversely, analysts at Topline Securities expected the Monetary Policy Committee (MPC) to maintain the current rate. They pointed to several uncertainties, including the pending International Monetary Fund (IMF) review and potential risks from US tariffs.
Topline noted that anticipated foreign inflows for the second half of FY25 have yet to materialize and are likely to arrive only after the IMF Board approves the first review, expected before June 2025.
