State Bank of Pakistan Cuts Policy Rate Amid Economic Recovery

On December 15, 2025, the State Bank of Pakistan (SBP) announced a reduction in its policy rate by 50 basis points, bringing it down to 10.5%, effective December 16. This decision was made by the Monetary Policy Committee (MPC) and marks a shift from the previous rate of 11%, which had been maintained for four consecutive meetings. The MPC cited contained inflation and improving economic activity as key factors influencing this decision.

Dawn

The MPC noted that inflation averaged within the target range of 5-7% during the July-November period of fiscal year 2026, despite persistent core inflation challenges. The committee highlighted positive developments in economic activity, particularly a stronger-than-expected growth in large-scale manufacturing, which is projected to support real GDP growth in the upper half of the 3.25-4.25% range for FY26. However, it also acknowledged ongoing risks from a challenging global environment, particularly affecting exports.

Dawn

Prime Minister Shehbaz Sharif expressed satisfaction with the rate cut, describing it as a positive step for the business community and the general public. He emphasized that the reduction would particularly benefit small and medium-sized enterprises by providing access to lower-cost loans. The MPC's statement underscored the importance of coordinated monetary and fiscal policies to sustain macroeconomic stability and long-term growth.

Express Tribune

Despite the SBP's optimistic outlook, the business community expressed disappointment over the modest nature of the rate cut. Industry leaders, including Muhammad Rehan Hanif, President of the Karachi Chamber of Commerce & Industry (KCCI), criticized the decision as insufficient to restore business confidence and stimulate economic growth. They argued that borrowing costs in Pakistan remain among the highest in the region, which hampers industrial growth and competitiveness.

Express Tribune

While the MPC projected that the current account deficit would remain manageable, concerns were raised about the impact of declining food exports, particularly rice, on the overall economic outlook. The MPC's assessment of the current account deficit being in line with expectations contrasts with the business community's calls for more aggressive monetary easing to support exports.

Dawn

Analysts noted that the rate cut could stimulate domestic demand and ease financing costs for leveraged sectors, potentially boosting investor sentiment in the stock market. However, there are concerns that the modest reduction may not adequately address Pakistan's structural economic challenges, including high production costs and rising energy tariffs.

Express Tribune

Looking ahead, the SBP's decision to lower the policy rate signals a cautious approach to supporting economic growth while remaining vigilant about inflationary pressures. The MPC's future actions will likely depend on ongoing economic indicators and external factors, including global commodity prices and trade dynamics. The consensus among business leaders is that further significant reductions in interest rates are necessary to unlock potential and foster sustainable economic growth.

Express Tribune