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SBP Keeps Policy Rate at 12%, Citing Inflation Stability and Economic Recovery
SBP keeps the policy rate at 12%, focusing on macroeconomic stability. Inflation is at a near-decade low, but economic activity and external pressures remain concerns. Analysts expect further rate cuts.
ND
by News Desk
2025-03-10
SBP Keeps Policy Rate at 12%, Citing Inflation Stability and Economic Recovery

The State Bank of Pakistan (SBP) announced on Monday that it has decided to maintain the policy rate at 12%, citing inflation stability, external account concerns, and ongoing macroeconomic adjustments.

The decision follows a significant reduction of 1,000 basis points in the policy rate since June 2024, bringing it down from 22% to 12% over six intervals.

Inflation at Near-Decade Low, but Risks Persist

February’s inflation dropped to 1.5%, the lowest in nearly a decade, largely due to a high base effect from the previous year. However, the SBP’s Monetary Policy Committee (MPC) remained cautious, warning of potential price volatility in food and energy sectors.

The central bank’s notification highlighted that while inflation has declined, core inflation remains persistent. "Economic activity continues to gain traction, as reflected in the latest high-frequency indicators," it noted, but added that rising imports and weak financial inflows were putting pressure on the external account.

Macroeconomic Trends and Growth Projections

Pakistan’s economy is showing signs of recovery, with consumer and business sentiment improving. However, the industrial sector continues to lag. Large-Scale Manufacturing (LSM) output declined by 1.9% in the first half of FY25, despite a 19.1% increase in December 2024.

The SBP maintained its GDP growth forecast at 2.5% to 3.5% for FY25, expecting economic activity to gain momentum in the latter half of the fiscal year.

External Account Pressures and Forex Reserves

The current account deficit turned negative in January, recording a shortfall of $0.4 billion, shrinking the cumulative surplus for July-January FY25 to $0.7 billion.

Rising imports, driven by economic recovery and increasing global commodity prices, contributed to the deficit. However, robust workers’ remittances helped offset some of these pressures.

The SBP emphasized the need to strengthen external buffers in light of global economic uncertainties, reaffirming its FY25 current account balance projection of a surplus/deficit within 0.5% of GDP.

Analyst Predictions: More Rate Cuts Ahead?

A Reuters survey of 14 analysts suggested further rate cuts in the coming months, with a median forecast of a 50bps reduction.

  • 10 analysts predicted a rate cut, with six expecting 50bps, one forecasting 75bps, and three projecting 100bps.
  • The remaining four analysts anticipated no change.

Most analysts believe the SBP will pause rate cuts when interest rates reach 10.5%–11%, as inflation is expected to rise moderately from March to May.

Economist Ahmad Mobeen of S&P Global projected an average inflation rate of 6.1% for 2025, warning that core inflation (7.8% in urban areas) remains elevated.

Future Outlook: Monetary Policy to Remain Cautious

The SBP reiterated that its monetary policy stance will remain cautious to keep inflation within the target range of 5%–7%. It also stressed the need for structural reforms to achieve sustainable economic growth.

While GDP grew by 0.9% in Q1 FY25, industrial production remains sluggish. Sana Tawfik, head of research at Arif Habib Limited, stated that economic recovery depends on industrial and agricultural sector improvements, adding that the full impact of lower interest rates on growth is yet to be seen.
Tagged:

SBP

inflation

PakistanEconomy

EconomicGrowth

MonetaryPolicy

InterestRates
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