- Decision
- Lower
- Rate change
- 100 bps
- policy rate
- 11%
The State Bank of Pakistan’s Monetary Policy Committee cut the policy rate by 100 bp to 11.0 percent, effective 6 May 2025, citing a sharp decline in headline inflation to 0.3 percent y/y in April, easing core inflation to 8.0 percent, and an improved outlook for meeting the 5–7 percent target despite global trade-tariff and geopolitical risks. Following a 100 bp cut to 12 percent in January and an unchanged stance in March, the policy rate now stands at its lowest this year. No adjustments were announced to the monetary operations framework, with the MPC judging the real policy rate “adequately positive.” Provisional GDP growth firmed to 1.7 percent y/y in Q2 FY25, keeping H1 growth at 1.5 percent and supporting the unchanged FY25 forecast of 2.5–3.5 percent, while private-sector credit growth quickened to 12.6 percent y/y by 18 April. Externally, a record USD1.2 bn current-account surplus in March lifted the July–March balance to a USD1.9 bn surplus, and the committee expects foreign-exchange reserves to reach USD14 bn by June despite weak financial inflows and a wider USD3.4 bn trade deficit in April. The MPC warned that heightened global tariff uncertainty and lower oil prices could challenge the outlook and pledged to maintain a measured stance as inflation is projected to edge up but stay within target in the coming months.
Rate evolution
The State Bank of Pakistan’s policy rate rose by a net 50 basis points over the period, moving from a prolonged hold at 11 percent to a 50 basis point cut in December 2025, a reversal to 11.5 percent in April 2026 and holds at that level in June, July and September. Through October 2025, the Monetary Policy Committee held at 11 percent as inflation stayed moderate and core inflation eased, even as activity recovered and it flagged widening trade deficits, weak inflows, energy-price risks, commodities and flood-related shocks. The December cut reflected inflation averaging within the 5 to 7 percent target range, relatively benign commodity prices and anchored expectations, with the Committee seeing room to support sustainable growth despite sticky core inflation and a difficult export environment.
It held at 10.5 percent in early 2026 as stronger domestic momentum met higher geopolitical uncertainty over energy costs and supply disruptions, before raising the rate by 100 basis points in April to keep expectations anchored and contain second-round effects after inflation and core inflation rose, with inflation projected to stay above the 5 to 7 percent range for most of FY27. The Committee held the policy rate at 11.5 percent on June 15, judging the stance appropriate to guide inflation towards the target range over the medium term, and again on July 27 as lower global oil prices, moderating inflation and contained external pressures improved the outlook, though renewed regional conflict kept risks elevated. On September 14, it maintained the rate at 11.5 percent as headline inflation rose to 11.1 percent in August from 9.2 percent in July, global commodity prices increased and supply disruptions persisted amid the intensifying Middle East conflict, while external pressures remained contained and activity began to recover, with the Committee judging the stance appropriate despite increased uncertainty.