Pakistan Central Bank Likely to Trim Benchmark Rate to 10.5% on July 30, 2025. KARACHI, July 29, 2025 — Pakistan’s central bank is widely expected to lower its key interest rate by 50 basis points this week, bringing the benchmark policy rate down to 10.5%. This decision, anticipated during the upcoming Monetary Policy Committee (MPC) meeting, is driven by signs of stabilizing inflation and improved external finances. All 14 analysts surveyed in a recent poll agree that a rate cut is imminent, with the majority predicting a 50 basis point reduction. Some analysts forecast a more aggressive cut of 100 basis points, while one predicts a modest 25-point drop.
Inflation at a Historic Low
Pakistan’s inflation rate has slowed dramatically over the past year. In June, consumer price inflation dropped to 3.2%, a significant decline that has eased cost-of-living pressures for citizens. Even more notably, the average inflation rate for the fiscal year ending June 30 fell to 4.49%, a sharp contrast to the 23.4% recorded during the same period last year. These numbers represent a nine-year low and have played a major role in influencing the central bank’s shift toward a more accommodative monetary policy.
The steep fall in inflation not only provides relief to households but also allows policymakers more room to maneuver. Real interest rates — the nominal rate adjusted for inflation — are now firmly in positive territory, encouraging financial institutions and investors. This creates a favorable environment for the central bank to continue easing its policy stance.
Analysts See Room for Gradual Easing
Market analysts and financial experts are in broad agreement that the State Bank of Pakistan (SBP) has ample space to reduce rates further. With inflation slowing and the country’s economic indicators showing signs of resilience, most forecasts suggest that the central bank will continue its easing cycle in the coming months. However, experts are urging a cautious approach due to potential volatility in imports and currency values.
According to leading financial strategists, the key reason for this cautious optimism lies in the broader macroeconomic environment. Although there’s support for easing, analysts point out that any sudden rise in import volumes or a decline in the rupee could put pressure on inflation once again. Therefore, the SBP is expected to act gradually and base its decisions on economic data.
External Finances Show Positive Signs
Pakistan’s external account position has improved significantly in recent months. The country’s foreign exchange reserves have risen above $14 billion, thanks to disbursements from the International Monetary Fund (IMF) under a $7 billion program and financial support from friendly nations. This increase in reserves has bolstered investor confidence and improved the country’s credit profile.
However, renewed pressure on the Pakistani rupee has triggered concerns in currency markets. In response, authorities launched a crackdown on informal dollar trading—aiming to stabilize the exchange rate. This effort is part of the government’s broader strategy to reduce speculation in the currency market and promote formal financial channels.
Despite this intervention, currency fluctuations remain a concern. As the rupee weakens under global and domestic pressures, the central bank must balance its easing efforts carefully to avoid stoking inflation through costlier imports.
A Brief History of Recent Rate Movements
The central bank began its rate-cutting cycle in mid-2024, following a peak policy rate of 22%. Over the subsequent months, it slashed rates by a total of 10 percentage points. However, the bank paused its easing cycle in March 2025 due to growing geopolitical tensions, particularly those involving Middle Eastern nations.
In May 2025, the central bank resumed its dovish stance with another 100 basis point cut. But in June, officials chose to hold rates steady once more, citing uncertainties in global markets and regional instability. This cautious but responsive approach reflects the SBP’s dual mandate of supporting economic growth while keeping inflation under control.
Central Bank Maintains a Watchful Eye
SBP Governor Jameel Ahmad recently emphasized that the bank will maintain a tight policy framework aimed at bringing inflation within the 5–7% target range. Speaking at an international summit earlier this month, he said that monetary policy decisions are already beginning to show results, both in controlling inflation and stabilizing the country’s external accounts.
His comments underline the central bank’s strategy to strike a delicate balance. While it is important to encourage economic activity by lowering borrowing costs, it is equally crucial to avoid a resurgence in inflation. The SBP has therefore signaled that future rate cuts will be data-driven and carefully measured.
