On March 10, 2025, the Monetary Policy Committee (MPC) of the State Bank of Pakistan decided to keep the policy rate steady at 12%, reflecting a cautious approach to balancing inflation control and economic growth.
The decision comes as headline inflation dropped to a surprising 1.5% in February 2025, driven by lower food and energy prices. However, the MPC highlighted risks from volatile commodity prices and persistent core inflation, which remains elevated despite the overall decline.
The policy rate, unchanged since the last cut, aims to keep real interest rates positive to anchor inflation within the 5-7% target range. Meanwhile, economic activity is picking up, with high-frequency indicators like auto sales and private sector credit showing gains. Yet, challenges persist: large-scale manufacturing contracted by 1.9% in the first half of FY25, and the current account slipped into a $0.4 billion deficit in January due to rising imports and weak financial inflows. Foreign exchange reserves have also dipped, though the MPC expects them to climb above $13 billion by June 2025 with planned inflows.
Globally, tariff escalations and commodity price uncertainties add pressure, prompting the MPC to emphasize a prudent stance. With GDP growth projected at 2.5-3.5% for FY25 and fiscal consolidation underway, the committee sees the effects of prior rate cuts taking hold but stresses the need for structural reforms to ensure lasting stability. For more details, visit the State Bank of Pakistan’s official statement.
For details: https://www.sbp.org.pk/press/2025/Pr-10-Mar-2025.pdf
