Pakistan Central Bank Expected to Cut Interest Rates

By Ariba Shahid
KARACHI (Reuters) – Pakistan's central bank is expected to cut its key interest rate further at its policy meeting on Monday, as policymakers strive to revive a fragile economy amidst easing inflation from recent record highs.

The State Bank of Pakistan has already reduced the benchmark policy rate from an all-time high of 22% to 17.5% in three consecutive meetings since June, with the last cut being 200 basis points in September.

All 15 investors and analysts surveyed by Reuters project a rate cut in the upcoming meeting. Two anticipate a 150 bps cut, twelve foresee a 200 bps reduction, and one predicts a 250 bps cut.

Economic activity has stabilized since last summer when the country nearly defaulted, leading to a last-minute bailout from the International Monetary Fund (IMF). In September, the IMF approved a long-awaited $7 billion facility, indicating that Pakistan had undertaken key steps to restore stability through consistent policy implementation under the 2023-24 standby arrangement.

Although the economy shows signs of gradual recovery and inflation has notably decreased from a multi-decade high of nearly 40% in May 2023, analysts argue that further rate cuts are essential for fostering growth. Mustafa Pasha, Chief Investment Officer at Lakson Investments, emphasized the need for rates to fall under 15% and remain below that for six months for a significant impact.

The IMF’s latest report predicts Pakistan's GDP growth at 3.2% for the fiscal year ending June 2025, up from 2.4% in fiscal 2024. October’s inflation rate was recorded at 7.2%, slightly above the government’s target of 6-7%. The finance ministry projects inflation to slow to 5.5-6.5% in November.

Nevertheless, inflation might rise again in 2025 due to electricity and gas tariff hikes associated with the IMF bailout and potential retail and wholesale sector taxes introduced in the June budget.

Ahmad Mobeen, senior economist at S&P Global Market Intelligence, pointed out that although lower rates may provide some relief for the manufacturing sector, benefits could be limited due to high input costs caused by elevated energy tariffs and global supply constraints.

Survey Responses on Rate Decision

1. AKD Securities – 200
2. Arif Habib Limited – 200
3. AWT Investments – 250
4. EFG Hermes – 200
5. Equity Global – 200
6. FRIM Ventures – 200
7. Ismail Iqbal Securities – 200
8. JS Capital – 150
9. KTrade – 200
10. Lakson Investments – 200
11. Pak Qatar Investment Company – 200
12. S&P Global Market Intelligence – 150
13. Spectrum Securities – 200
14. Topline Securities – 200
15. Uzair Younus – 200

Median – 200