The State Bank of Pakistan (SBP) has lowered its key interest rate by 100 basis points (bps) to 11%, effective May 6, 2025. This decision, announced by the SBP’s Monetary Policy Committee (MPC), reflects the country’s improving economic conditions and declining inflation trends.
The Monetary Policy Committee (MPC) noted a significant decrease in inflation during March and April 2025, a key factor behind the decision to cut interest rates. The reduction in administered electricity prices greatly alleviated inflationary pressures. Additionally, a steady decline in food prices contributed to the overall drop in inflation. Core inflation also decreased in April, influenced by a favourable base effect and moderate demand conditions.
The committee noted, “Inflation declined sharply during March and April, mainly due to a reduction in administered electricity prices and continued downtrend in food inflation.” This data-driven decision underscores the SBP’s commitment to fostering economic stability.
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Lowering the interest rate to 11% will stimulate borrowing, boost business investments, and support consumer spending. By reducing the cost of borrowing, the SBP aims to encourage economic activity while maintaining price stability. The decision aligns with global monetary policy trends in response to easing inflation.
The SBP’s decision is grounded in a thorough economic analysis outlined by the MPC. The committee’s focus on core inflation and demand conditions reflects a balanced approach to monetary policy. Economists and business leaders have welcomed this move, which they see as a step toward sustainable growth.
