Pakistan cuts interest rate by 200 bps

By Tuba Ongun

Pakistan trimmed its benchmark interest rate for the fifth straight meeting thanks to improved inflation.

The State Bank of Pakistan cut the policy rate by 200 basis points to 13%, the lowest since 2022, according to a statement from the central bank Monday.

The gradual policy rate cuts are helping control inflation and external account pressures while supporting sustainable economic growth, said the bank.

Annual inflation eased to a six-year low of 4.9% in November aligning with the Monetary Policy Committee's (MPC) expectations.

The decrease was mainly led by a sustained decline in food inflation due to the fading impact of last year’s gas tariff hike.

However, core inflation remains elevated at 9.7%, indicating persistent underlying price pressures, said the statement.

The committee highlighted ongoing volatility in consumer and business inflation expectations, suggesting that inflation may continue to fluctuate in the short term before stabilizing within the target range.

The bank projected inflation to average substantially below its earlier forecast range of 11.5%–13.5% for the fiscal year ending June.

Since June, the bank has lowered its benchmark rate by 900 basis points.