Pakistan Central Bank Expected to Adopt Cautious Rate Cut Approach

The State Bank of Pakistan (SBP) is poised to tread carefully on reducing the policy interest rate in response to mounting demands from business leaders, despite inflation rates decreasing and an improving economy.

The SBP has been under pressure to lower the policy rate, with its policymaking Monetary Policy Committee (MPC) previously cutting rates by 525 basis points (bps) in the last three meetings. This latest push for a significant rate cut, totaling 1000 bps over three meetings, aims to stimulate economic growth and benefit the government. Proponents argue that declining inflation rates make this possible. Moreover, the Hong Kong-based policy stress index has plummeted, signifying increased optimism about Pakistan's economic prospects. Consequently, the Pakistan Stock Exchange (PSX) has witnessed a remarkable surge, with the benchmark KSE-100 index climbing 2107.13 points, approximately 1.84%, to reach 116,408.93 points. Financial experts, however, foresee a more modest interest rate reduction of 200 to 300 bps, diverging sharply from businesses, which are demanding a more substantial decrease of 400 to 500 basis points.