Karachi, March 10, 2025: The State Bank of Pakistan (SBP) has decided to pause its rate-cutting cycle, keeping the policy rate steady at 12%, as it braces for a temporary rise in inflation in the coming months.
The decision follows a review of Pakistan’s $7 billion IMF bailout package, where discussions on new taxation measures and revenue targets raised concerns about inflationary pressures.
The Monetary Policy Committee (MPC) cited several factors for maintaining the status quo. While February’s inflation was lower than expected due to a drop in food and energy prices, the committee noted that price volatility remains a major concern. After months of surplus, Pakistan’s current account slipped into a $0.4 billion deficit in January, partly due to weak financial inflows and ongoing debt repayments, leading to a decline in SBP’s foreign exchange reserves. A slowdown in large-scale manufacturing, tax revenue shortfalls, and global uncertainties also played a role in the decision. Despite overall inflation easing, core inflation—which excludes food and energy—remains high, indicating lingering price pressures.
The SBP reaffirmed that the current real interest rate remains positive and supports macroeconomic stability. It stressed the need for a cautious approach to monetary policy, aiming to keep inflation within the 5-7% target range while implementing structural reforms for sustainable growth.
This pause comes after an aggressive rate-cutting cycle, where the SBP slashed rates by 1,000 basis points (bps) in just six months—bringing the policy rate down from a record 22% in June 2024 to 12% in January 2025.
With inflation risks rising and external pressures mounting, analysts believe the SBP may be nearing the end of its rate-cutting cycle and could shift to a data-driven approach moving forward.
If Pakistan meets IMF’s economic reform conditions, it could unlock additional funding before the June budget. Some analysts expect the SBP to halt further cuts if rates reach 10.5%-11%, anticipating inflationary pressures from March to May. Pakistan’s $350 billion economy grew by 0.92% in Q1 FY2024-25, according to data from the National Accounts Committee.
With economic uncertainty still looming, the SBP’s rate-cutting cycle may be over, as it prioritizes stability over further easing.
