The State Bank of Pakistan (SBP) is widely expected to lower its key interest rate by 50 basis points to 10.5% in its upcoming policy meeting, as the country sees a sustained slowdown in inflation and gains in external account stability. According to a Reuters poll conducted ahead of the monetary policy decision, all 14 analysts surveyed forecast a rate cut, with the majority projecting a 50 basis point reduction. A few, however, anticipate a deeper move, with four expecting a 100 bps cut and one predicting a more modest 25 bps reduction.
This consensus for policy easing comes on the back of significant improvements in Pakistan’s macroeconomic indicators. Headline consumer inflation dropped to 3.2% in June, while average inflation for the fiscal year ending June 30, 2025, declined sharply to 4.49%—a nine-year low—compared to 23.4% the previous year. With real interest rates now clearly in positive territory, analysts view further monetary easing as both justified and sustainable.
Economic experts see this upcoming rate move as a continuation of the SBP’s pivot that began in June 2024, when the central bank initiated its rate-cutting cycle from a record 22%. By May 2025, the SBP had delivered a cumulative reduction of 1100 basis points before pausing temporarily in June amid rising geopolitical tensions in the Middle East. With external conditions showing signs of normalisation, the easing cycle is expected to resume.
Sana Tawfik, head of research at Arif Habib Limited, noted that the confluence of low inflation and a more stable external account gives the SBP room to maneuver. However, she cautioned that a rise in imports and exchange rate pressure necessitates a cautious, data-driven approach. This sentiment reflects the broader market expectation that while the rate-cutting trend will likely continue, it may proceed at a moderate pace.
Pakistan’s foreign exchange reserves have risen to over $14 billion, bolstered by disbursements under the ongoing $7 billion International Monetary Fund (IMF) programme, along with bilateral financing. These improvements have provided some breathing space to monetary authorities, who are also focused on maintaining a stable exchange rate in the face of renewed pressure on the rupee. In response, the government recently launched a crackdown on informal dollar trading networks, signaling its commitment to currency market stability.
July inflation is projected to hover between 3.5% and 4.5%, according to the finance ministry, further reinforcing expectations of monetary easing. However, rising global commodity prices and a potential uptick in imports remain key risk factors.
SBP Governor Jameel Ahmad recently stated at the Reuters NEXT Asia summit that while the central bank’s policy stance remains tight, its current framework is already influencing inflation and external accounts positively. He reiterated the central bank’s target to bring inflation within the 5–7% range.
Economists like Ahmed Mobeen of S&P Global Market Intelligence suggest that while the SBP may continue to cut rates, it will likely adopt a measured pace during the second half of 2025. Mustafa Pasha, chief investment officer at Lakson Investments, expects a gradual descent of policy rates into high single digits by mid-2026, citing a more stable macroeconomic landscape post-budget and post-IMF review.
In a further vote of confidence, S&P Global recently upgraded Pakistan’s sovereign rating from ‘CCC+’ to ‘B-’, citing improved fiscal discipline, declining inflation, and stronger external buffers. This upgrade reinforces the case for a cautiously accommodative monetary policy, as Pakistan seeks to balance growth stimulation with macroeconomic prudence.