Most analysts expect Pakistan’s central bank to announce a seventh consecutive rate cut on Monday during the first review of the $7-billion International Monetary Fund (IMF) bailout. This comes at a time when inflation has hit its lowest levels in nearly a decade.
If the IMF review is approved before the national budget announcement in June, the cash-strapped nation could unlock another tranche of funding. This development aligns with Pakistan’s commitment to the economic reforms outlined in the IMF program.
The central bank has undertaken one of the most aggressive easing policies among emerging markets, slashing rates by a total of 1,000 basis points (bps) over the past six months. This series of cuts has brought the key rate down to 12% from a record high of 22% in June. In January, they cut rates by 100 bps.
February’s inflation rate was recorded at 1.5%, a near-decade low, primarily due to a high base effect from the previous year.
A Reuters survey of 14 analysts indicates that most anticipate another rate reduction, with a median forecast of a 50 bps cut. Among the 10 predicting a rate decrease, estimates range from 50 bps to as large as 100 bps. The remaining analysts expect no change.
Many analysts believe the central bank will halt rate cuts when the policy rate reaches 10.5% to 11%. They cite concerns over a possible increase in inflation. Projections suggest inflation will modestly rise between March and May.
Senior economist Ahmad Mobeen of S&P Global predicts inflation will “bottom out” in the first quarter of this year and gradually increase. He estimates average inflation will reach 6.1% in 2025. Despite the sharp decline in the Consumer Price Index (CPI), urban core inflation remains resilient. It currently stands at 7.8%, reflecting ongoing price pressures.
Mobeen also pointed out that the S&P Global HBL Pakistan Manufacturing PMI indicates growing input costs. Manufacturers raised prices in February 2025 at the fastest rate since October 2024.
At its last policy meeting, the central bank maintained its full-year GDP growth forecast at 2.5% to 3.5%. It expects improved growth to bolster foreign exchange reserves. However, economic performance remains mixed. GDP grew by 0.9% in the first quarter of fiscal year 2025. However, large-scale manufacturing remains in negative territory, and production has yet to show significant improvement.
According to Sana Tawfik, head of research at Arif Habib Limited, the effects of lower interest rates are not yet clear. The impact they will have on economic activity remains unclear. The impact has yet to materialize. She noted that achieving the GDP growth target largely depends on a revival in industrial activity and improved agricultural output.
