The State Bank of Pakistan has reduced its key policy rate by 100 basis points to 11%, effective May 6, 2025. This decision was made by the Monetary Policy Committee, which noted a significant decline in inflation during March and April, driven by reduced government electricity prices and declining food inflation. Core inflation also decreased in April.
The committee considered several factors when making this decision, including the provisional real GDP growth of 1.7% in the second quarter of fiscal year 2025. The overall growth in the first half of the fiscal year was 1.5%, aligning with the committee’s expectations. Additionally, a significant surplus of $1.2 billion was recorded in the current account in March, largely due to record-high remittances from workers.
Recent surveys indicate further improvement in both consumer and business sentiment. However, the committee noted that the results of large-scale manufacturing continued to be lower than expected, with some sectors experiencing significant contraction. Despite this, economic activity has maintained its momentum, reflected in rising sales of passenger vehicles and petroleum products, increased power generation, and improving business and consumer confidence.
The State Bank of Pakistan aims to stabilize prices and financial markets through its monetary policy. The decision to cut the interest rate is intended to stimulate economic growth while keeping inflation in check. This marks the sixth consecutive rate reduction, with interest rates decreasing by 200 basis points in December 2024 and remaining at 12% last month before the latest cut.
Key economic indicators show
– Current Interest Rates:
- Policy Rate: 11%
- SBP Overnight Reverse Repo (Ceiling) Rate: 13%
- SBP Overnight Repo (Floor) Rate: 11%
– KIBOR Rates (as of May 2, 2025):
- 3-Month Bid: 11.85%
- 3-Month Offer: 12.10%
– GDP Growth:
- Provisional real GDP growth in Q2 FY2025: 1.7%
- Overall growth in the first half of FY2025: 1.5%
– Inflation:
– Annual inflation rate eased to 4.1%
The State Bank of Pakistan’s decision to cut interest rates is expected to have a positive impact on the economy, particularly in stimulating growth and investment. However, the bank remains vigilant about inflationary pressures and will continue to monitor economic indicators to make informed decisions about future monetary policy adjustments.
