Pakistan central bank cuts key rate by 100 bps

Pakistan's central bank cut its key policy rate by 100 basis points to 12% on Monday, for a sixth straight reduction since June as the country attempts to revive business and economic sentiment amid easing inflation.

The State Bank of Pakistan has slashed rates by 1,000 bps from an all-time high of 22% in June 2024, one of the most aggressive moves among central banks in emerging markets and exceeding its 625 bps of rate cuts in 2020 during the COVID-19 pandemic.

The bank's governor Jameel Ahmad said at a press conference that the inflation rate would ease further in January but noted core inflation remained elevated. He said the forecast for full-year inflation in the year to June was an average of 5.5%-7.5%.


"Considering these developments and evolving risks, the Committee viewed that a cautious monetary policy stance is needed to ensure price stability, which is essential for sustainable economic growth," the bank's monetary policy committee (MPC) said in a statement accompanying the decision.

"In this regard, the MPC assessed that the real policy rate needs to remain adequately positive on a forward-looking basis to stabilize inflation in the target range of 5 - 7 percent."

Fourteen of 15 analysts surveyed by Reuters expected the central bank to cut its key rate by at least 100 bps mainly due to a drop in inflation.

Pakistan's consumer inflation rate slowed to an over 6-1/2-year low of 4.1% in December, largely due to a high year-ago base. That was below the government's forecast and significantly lower than a multi-decade high of around 40% in May 2023.

Pakistan's economy grew 0.92% in the first quarter of fiscal 2024-25 which ends in June, according to data approved by the National Accounts Committee, and released by its Statistics Bureau in December.

The governor said the bank maintained its forecast of full-year GDP growth at 2.5%-3.5%.