The State Bank of Pakistan (SBP) has unexpectedly paused its monetary easing cycle, maintaining the key policy interest rate at 12%. This decision follows a series of rate cuts totaling 1,000 basis points from a record high of 22% in June 2024, aimed at reviving economic growth.
The central bank’s decision reflects concerns over potential price risks, including global tariff escalations, despite a significant drop in inflation to 1.5% in February. Economists note that while lower interest rates can stimulate growth, they must be complemented by fiscal reforms, such as tax restructuring and energy sector improvements, to encourage private investment and prevent economic imbalances.
The SBP anticipates resuming rate cuts once there’s greater certainty about achieving its medium-term inflation target of 5-7%. However, challenges like rising energy tariffs and fiscal austerity measures under the International Monetary Fund program may hinder demand revival.
Despite the pause, the SBP maintains its GDP growth forecast at 2.5% to 3.5% for the fiscal year, expecting economic activity to gain momentum.