Pakistan
The Central Bank of Pakistan on Monday cut the key interest rate by 50 basis points to 10.5%. This was a decision to break the situation of no change in interest rates that had been going on for four meetings. Regarding this unexpected step, the bank said that its objective is to support economic growth for a long time and keep inflation within the set target.
All 12 analysts surveyed by Reuters expected the State Bank of Pakistan to keep the policy interest rate at 11%, especially after the International Monetary Fund had warned against prematurely relaxing interest rates under Pakistan’s $7 billion loan program. The central bank said that the current real interest rate is sufficient to keep inflation under control in the coming times. Also, to achieve this goal, the need for continuous reforms in the financial policy, monetary policy of the government was also emphasized.
The bank said that during July to November of the financial year 2026, the average inflation rate remained within the target of 5% to 7%, although the core inflation rate remained almost stable. It said that there has been no major change in the forward estimates, but due to some calculated reasons, inflation may increase for some time at the end of the financial year 2026. After this, it is expected to come back to the target level in the next financial year.
fast pace of development
SBP said that the economic activities of the country are showing a boom, the main reason for which is stronger than expected growth in big industries. The bank maintained its economic growth forecast for fiscal year 2026 at the upper end of the range of 3.25% to 4.25%, although it also pointed to risks related to the global situation.
Monday’s cut brings the total cut since interest rates hit an all-time high of 22% in 2023 to 1,150 basis points. SBP had cut the interest rates by 1,100 basis points between June 2024 and May 2025 and after this kept the interest rates stable for four meetings. Fawad Basir, head of research at Catrade, said the 50 basis point cut was a surprising decision and shows the intention to support faster economic growth. He said that strong foreign exchange reserves would have reduced concerns about the rupee and current account deficit, due to which rates were earlier expected to remain stable.
improvement in foreign exchange reserves
Pakistan’s foreign exchange reserves have increased to more than $15.8 billion after receiving an amount of $1.2 billion from the IMF after the completion of the review of the program. The central bank estimates that if foreign money continues to come as per the plan, then by June 2026 this reserve can reach $17.8 billion. Shahid Habib, Chief Executive Officer of Arif Habib Limited, said that considering the current economic situation, the decision taken on interest rates seems right.
Last week, an IMF report warned this important country of South Asia against prematurely relaxing interest rates and advised to decide the policy based on data, so that the expectations of the people remain stable and foreign resources can be strengthened again.
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