Karachi: The State Bank of Pakistan (SBP) has reduced the interest rate by 1 percent, bringing it down to 11 percent. This decision will take effect from May 6, 2025. The central bank made this move because inflation has come down sharply in recent months.
According to the Monetary Policy Committee (MPC), prices of food and electricity have dropped, which helped bring overall inflation down to just 0.3 percent in April. Core inflation, which does not include food and energy, also decreased to 8 percent.
However, the central bank warned that inflation could rise a little in the coming months before settling between 5 to 7 percent, which is their target range. They also mentioned risks from global economic uncertainty, changing food prices, and energy costs.
Pakistan’s economy is slowly recovering. The country’s GDP grew by 1.7 percent from January to March, while growth for the first half of the fiscal year stood at 1.5 percent. Sales of cars and fuel are increasing, electricity generation is up, and people and businesses are feeling more confident. But some large industries, especially those related to construction, are still struggling.
The country’s current account – which tracks money flowing in and out – showed a strong surplus of $1.2 billion in March. This was mainly due to record-high remittances from overseas Pakistanis. From July to March, the total surplus reached $1.9 billion. While the trade deficit rose to $3.4 billion in April, the central bank still expects the current account to stay positive this year.
The SBP believes foreign exchange reserves will grow to $14 billion by June, if expected foreign funds arrive on time. These reserves are also expected to increase further next year.
On the tax side, the government collected 26.3% more taxes between July and April compared to last year, but it still fell short of the target. The MPC said there is a need to improve tax collection and reduce reliance on loans. It welcomed new laws to tax agricultural income and called for their proper enforcement.
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Bank lending has increased, especially to industries like textiles, chemicals, and oil refineries. Personal loans and car financing are also up. More money is circulating in the economy, especially around Eid.
The central bank said this interest rate cut will help control inflation while also supporting economic growth. It added that the situation will continue to be monitored carefully.
