Pakistan Cuts Key Interest Rate to 10.5% in Unexpected Move

Pakistan’s central bank announced a reduction in its key interest rate by 50 basis points, bringing the rate down to 10.5% on December 15, 2024. This decision ended a four-meeting period during which the rate remained unchanged, surprising many analysts who anticipated the State Bank of Pakistan (SBP) would maintain the rate at 11%.

The latest adjustment marks a significant easing in monetary policy, as the SBP has now lowered rates by a total of 1,150 basis points since they peaked at 22%. Prior to this reduction, the bank had implemented significant cuts totaling 1,100 basis points between June 2024 and May 2025, before opting to hold steady for several meetings.

Inflation data released for November revealed a slight decrease to 6.1%, down from 6.2% in October. This figure falls within the SBP’s target range of 5% to 7%. However, analysts caution that inflation may rise again later in the fiscal year 2026, as base effects dissipate and volatility in food and transport prices continues.

The decision to lower interest rates comes despite warnings from the International Monetary Fund (IMF). A recent staff report urged the SBP to avoid premature easing, emphasizing the need for policy to remain data-dependent to maintain economic stability and to rebuild external buffers. This call for caution persists even as Pakistan received a substantial $1.2 billion disbursement under its ongoing loan program with the IMF.

The unexpected move by the SBP may have implications for various sectors of the economy, particularly as businesses and consumers react to changing borrowing costs. With the central bank taking a new direction, analysts and market participants will closely monitor upcoming economic data to gauge the impact of this policy shift on inflation and overall economic growth.

As Pakistan continues to navigate its financial landscape, the balance between stimulating growth and maintaining economic stability remains a critical focus for policymakers and stakeholders alike.