KARACHI: The State Bank of Pakistan (SBP) revealed today that it will maintain its key interest rate, known as the policy rate, at 12%. This choice was made by the Monetary Policy Committee (MPC), the team responsible for managing the nation’s money policies.
The MPC pointed out that inflation, or the rate at which prices increase, fell more than expected in February 2025. This drop was largely due to cheaper food and energy costs. However, they cautioned that these prices can be unstable and might rise again, threatening the current slowdown in inflation. They also said “core inflation” (prices excluding food and energy) remains high and isn’t decreasing as quickly as they’d like.
The economy is picking up. Sales of cars, fuel, and cement are growing, and both people and businesses are feeling more optimistic. However, factory production has been weaker than hoped this year. The MPC predicts the economy will grow by 2.5% to 3.5% by June 2025.
On the flip side, Pakistan’s current account, which measures money moving in and out of the country, recorded a $0.4 billion deficit in January 2025 after being in surplus for months. Imports are increasing as the economy gets busier, and some global prices are climbing too. This has put strain on the country’s foreign exchange (FX) reserves, which have gone down lately. Still, the SBP expects reserves to climb above $13 billion by June 2025 if expected international funds arrive.
Tax revenues have fallen short of goals in January and February, but the government has kept spending in check. This has improved the budget compared to last year.
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Inflation has dropped to 1.5%, a recent low, thanks to affordable food and fuel. But the MPC warned that prices could go up later due to unpredictable food costs, energy price adjustments, or new taxes. Their goal is to keep inflation steady between 5% and 7% over time.
The MPC chose to stick with the 12% interest rate to support economic growth while keeping prices under control. They believe this rate strikes the right balance for now. The committee also highlighted the need for changes, like boosting tax collection, to ensure Pakistan’s economy stays on track.
