Pakistan central bank cuts policy rate by 1 pc amid easing inflation

Pakistan's central bank on Monday decided to cut the policy rate by 1 per cent, bringing it to 11 per cent, amid an easing of inflation. In an announcement, the State Bank of Pakistan (SBP) said its Monetary Policy Committee (MPC) decided to cut the interest rate from 12 to 11 per cent, noting that inflation in April was 0.3 per cent, lower than many had expected.

The central bank has been continuously slashing the policy rate and has so far reduced it by 1,000 basis points (bps) from 22 per cent since June 2024.

The low inflation is primarily attributed to lower prices of key food staples such as wheat and its derivatives, onions, potatoes and certain pulses, as well as a cut in electricity and fuel charges.


These items carry significant weight in the inflation basket - the Consumer Price Index (CPI) - meaning minor price changes can heavily influence the overall rate.

Earlier, it was expected that the policy rate may be reduced by half a per cent, but the bank reduced it by one per cent. In March, in a surprise move, the bank left the rate unchanged at 12 per cent.

The cut in the interest rate is expected to fuel growth as it will be easier for the business community to get loans at a cheaper rate from banks.