Karachi: The State Bank of Pakistan (SBP) is anticipated to cut the policy rate by 50bps to 11.5% during the Monetary Policy Committee (MPC) meeting of May 5, 2025.
According to a report by Arif Habib Limited (AHL), the central bank stood at 12% at its last meeting held on March 10. This proposed rate cut is amid an instantaneous and enduring drop in headline inflation, down to an era low of 0.7% in March 2025, and, the expectation has it, into 0.45% in April.
Certainly, the underpinning causes include a sweet disinflation spiral and mountains of real interest buffer to safeguard some cushion for correction of the benchmark rate. The average inflation rate for the first ten months of this fiscal year (10MFY25) is likely to register 4.88%, significantly down from 26.22% in the previous year's corresponding ten months, reflecting a very high base effect and moderating food and energy prices.
Even though inflation rate shows a declining trend at present, there remain inflationary risks hinted by the MPC, particularly owing to the volatility in food and energy prices and core inflation exhibiting some persistence. Still, they believe there is enough space to render a modest stimulus for growth in the prevailing economic scenario without exposure to peril.
The rate cut, if implemented, would be of strategic use to support the rebound of Pakistan's economy by elevating the already low debt servicing costs for industries as well as consumers, thus keeping the core vigilant about looming inflationary pressures for the next months to come.
[Source Credit: Business Recorder]
