SBP cuts policy rate by 100 basis points to 11% amid declining inflation

The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday reduced the benchmark interest rate by 100 basis points, bringing it down to 11%, effective from May 6, 2025. This move, larger than expected by financial markets, comes in response to a sharp decline in inflation over the past two months.

In its policy statement, the MPC noted a significant drop in inflation during March and April, attributed primarily to a reduction in administered electricity prices and a continued downtrend in food inflation. Core inflation also eased in April, aided by a favorable base effect and subdued demand.

“The inflation outlook has improved further relative to the previous assessment,” the MPC said. However, it cautioned that heightened global uncertainty—particularly around trade tariffs and geopolitical developments—could present challenges for the economy, warranting a cautious approach to monetary policy.

Market forecasts had varied ahead of the announcement. Arif Habib Limited had anticipated a modest 50 bps cut, while analysts at Topline Securities had expected the rate to remain unchanged due to risks related to the IMF review and US tariffs.

The policy rate was previously held at 12% in the MPC’s last meeting.