KARACHI: In a move that defied analysts’ expectations, the State Bank of Pakistan (SBP) announced on Monday a 100 basis point reduction in its interest rate, bringing it down to 11%. Despite rising geopolitical tensions with India, experts had anticipated that the SBP would either keep the rate unchanged or reduce it by a more cautious 50 basis points.
The central bank’s monetary policy committee (MPC) stated that the decision was influenced by “heightened global uncertainty, surrounding trade tariffs and geopolitical developments,” but emphasized the need for a “measured monetary policy stance.” Since June 2024, the SBP has lowered the interest rate by 1,100 basis points, significantly reducing it from 22% to the current level.
Analysts believe that this rate cut will encourage private sector investment and stimulate economic growth, despite the risks posed by global uncertainties and unfavorable weather conditions for the upcoming Kharif season. According to Shankar Talreja from Topline Research, the interest rate is expected to drop further to around 10% by December.
The MPC has kept its growth projection for FY25 unchanged, forecasting a growth range of 2.5% to 3.5%, though it acknowledged risks associated with global events and domestic agricultural challenges. The committee also indicated that inflation, which fell to a record low of 0.3% in April, is expected to rise slightly and stabilize within the target range of 5-7% in the coming months.
In terms of debt management, the committee reported a significant current account surplus of $1.9 billion for the first nine months of FY25, driven by record-high remittances and reduced oil imports. Additionally, the Federal Board of Revenue (FBR) achieved a 26.3% increase in tax revenue year-on-year, although it remained slightly below the set target.
Despite these positive developments, the MPC noted that large-scale manufacturing has underperformed, particularly in the construction and low-weight sectors. The committee also confirmed that Pakistan’s external debt servicing requirement for the fiscal year stands at $26 billion, with most of it already rolled over. Of the $10 billion payable, $8.5 billion has been repaid, leaving $1.3 billion to be cleared in the coming months.
