SBP Lowers Policy Rate by 100bps Amid Inflation Drop, Anticipates Economic Stability

Karachi: The State Bank of Pakistan (SBP) reduced its policy rate by 100 basis points to 11.0%, aligning with expectations and reflecting improved inflation outlook due to decreased electricity and food prices. Despite this positive development, the central bank remains cautious because of global tariff conflicts and geopolitical tensions.

In the post-monetary policy statement analyst briefing, the SBP Governor noted that while the trade war might generally benefit Pakistan, some exporters could face challenges. However, the central bank remains hopeful about favorable tariff discussions with the United States.

The Monetary Policy Committee (MPC) has maintained its economic growth forecast for fiscal year 2025, predicting an increase in growth to between 2.5% and 3.5%, with further acceleration anticipated in fiscal year 2026.

Regarding Pakistan’s external financial obligations, the government is on track to meet its commitments for fiscal year 2025, amounting to $26.1 billion, with a significant portion already settled. The MPC expects foreign exchange reserves to reach $14 billion by June 2025, supported by planned official inflows.

The SBP also reported a reduction in forward obligations by over $3 billion, now standing at $2.6 billion. The foreign exchange market has shown relative stability, with the SBP pledging to intervene only to ensure smooth operation, not to influence exchange rates.

The current policy rate is considered favorable for savers, and deposit growth is anticipated to improve. The central bank has observed an increase in private sector borrowing, averaging 8% year-on-year, driven by lower interest rates.

Lastly, the SBP confirmed that the first review under the Extended Fund Facility and the new Resilience and Sustainability Facility arrangement is proceeding as planned. There are no current plans to change consumer finance regulations, including those related to auto financing, despite significant growth in auto sales.