Pakistan cuts key rate by 50 bps to 10.5% in surprise move
FILE PHOTO: A logo of the State Bank of Pakistan (SBP) is pictured on a reception desk at the head office in Karachi, Pakistan July 16, 2019. REUTERS/Akhtar Soomro/File Photo
KARACHI, Pakistan, Dec 15 : Pakistan's central bank cut its key interest rate by 50 basis points to 10.5 per cent on Monday, breaking a four-meeting hold in a surprise move it said was aimed at supporting sustainable economic growth while keeping inflation within target.
All 12 analysts in a Reuters poll had expected the State Bank of Pakistan to hold the policy rate at 11 per cent, especially after the International Monetary Fund warned against premature easing under Pakistan's $7 billion loan programme.
The central bank said the real policy rate remained sufficient to stabilise inflation over the medium term, underscoring the need for coordinated fiscal and monetary policy and continued structural reforms.
It said inflation averaged within its 5 per cent-7 per cent target range during the July-November period of fiscal year 2026, which ends next June, despite "sticky" core inflation.
It added that the outlook was broadly unchanged, though inflation could rise temporarily toward the end of FY26 due to base effects before returning to target in the next fiscal year.
GROWTH MOMENTUM BUILDS
The SBP said economic activity was picking up, citing stronger-than-expected growth in large-scale manufacturing.
It kept its FY26 growth outlook in the upper half of its 3.25 per cent-4.25 per cent range, while flagging risks from a challenging global environment.
Monday's reduction takes the total easing since rates peaked at 22 per cent in 2023 to 1,150 basis points. The SBP had delivered 1,100 bps of cuts between June 2024 and May 2025 and then held the rate steady for four meetings before Monday's move.
"The 50-bps cut was a major surprise and signals an intent to support faster economic growth," said Fawad Basir, head of research at KTrade. He added that stronger reserves might have "eased concerns over the rupee and the current account deficit", which had "underpinned expectations of an unchanged stance".
FX BUFFERS IMPROVE
Pakistan's foreign exchange reserves have risen above $15.8 billion following a $1.2 billion IMF disbursement after the completion of programme reviews. The central bank projects reserves to reach $17.8 billion by June 2026, assuming planned inflows materialise.
"The (rate) decision appears well-justified given prevailing macroeconomic conditions," said Shahid Habib, chief executive of Arif Habib Ltd.
An IMF staff report last week warned against premature easing by the major South Asian nation, calling for policy to remain data-dependent to anchor expectations and rebuild external buffers.
