Pakistan cuts key policy rate by 250 bps to 15%; 4th straight reduction

Pakistan's central bank cut its key policy rate by 250 basis points to 15% on Monday, it said in a statement, for a fourth straight reduction since June, as the country keeps up efforts to revive a sluggish economy with inflation easing.

 

Most respondents in a Reuters poll last week expected a cut of 200 bps after inflation moved down sharply from a multi-decade high of nearly 40% in May 2023, saying reductions were needed to bolster growth. 

Average consumer price index inflation in the South Asian country is 8.7% in the current financial year, which started in July, the statistics bureau says. The International Monetary Fund (IMF) expects inflation to average 9.5% for the year ending June.

 

Monday's move follows cuts of 150 bps in June, 100 bps in July, and 200 in September that have taken the rate from an all-time high of 22%, set in June 2023 and left unchanged for a year. It takes the total cuts to 700 bps in under five months.

October inflation came in at 7.2%, slightly above the government's expectation of 6% to 7%. The finance ministry expects inflation to slow further to 5.5% to 6.5% in November. 

However, inflation could pick up again in 2025, driven by electricity and gas price increases after a new $7-billion IMF bailout, and the potential impact of taxes on the retail, wholesale and the farm sector announced in the June budget to take effect in January 2025, some analysts say.