By Ariba Shahid

KARACHI (Reuters) – Pakistan's central bank cut its key policy rate by a record 250 basis points to 15% on Monday, exceeding expectations, as the country aimed to revive a sluggish economy amid a significant drop in inflation rates.

Respondents in a Reuters poll last week expected a cut of 200 bps after inflation moved to 7.2% in October, a sharp drop from a multi-decade high of nearly 40% in May 2023. They stated that reductions were needed to bolster economic growth. The finance ministry expects inflation to slow further to 5.5% to 6.5% in November.

Pakistan has reduced interest rates by 700 bps since June in four consecutive cuts.

The State Bank of Pakistan (SBP) justified the rate cut, stating that the current monetary policy stance is suitable to achieve price stability and maintain inflation within the 5-7% target range.

> "This will also support macroeconomic stability and help achieve economic growth on a sustainable basis," it said.

Central Bank Governor Jameel Ahmad told analysts in a briefing after the decision that bilateral partners have assured the International Monetary Fund (IMF) of continuing debt rollovers for the duration of Islamabad's bailout program.

In September, the IMF approved a long-awaited $7 billion facility for Pakistan, which will last 37 months, boosting the struggling economy.

Despite not providing revised figures, the bank anticipates that average inflation for the fiscal year ending June 2025 will be significantly lower than the previous forecast of 11.5 to 13.5%. GDP growth for the current fiscal year is expected to exceed previous estimates, remaining within the targeted range of 2.5 to 3.5%.

Adnan Sheikh, assistant vice president at Pak Kuwait Investment Company, noted that the larger than expected cut indicated a rapid easing of inflation. He emphasized that the reduction is crucial for manufacturing, consumer, construction, and textile sectors operating below optimum capacity, especially as purchasing power has declined after a long period of high inflation.

Pakistan's average inflation rate stands at 8.7% for the current fiscal year, with the IMF predicting a 9.5% average inflation rate for the year ending June. October's inflation rate was 7.2%, slightly above expectations, and the finance ministry forecasts a slowdown to 5.5-6.5% in November.

Some analysts warned of a potential pick-up in inflation in 2025 due to higher electricity prices and new taxes on the retail, wholesale, and farming sectors announced in the June budget, set to take effect in January 2025.