SBP Lowers Interest Rate to 11% in the Face of Declining Inflation and Economic Stability

The State Bank of Pakistan’s Monetary Committee’s decision to lower interest rates by an additional 1% (100 basis points) reflects their belief that the economy is stable and expanding. The announcement of lowering the interest rate to 11 percent during Monday’s (May 5, 2025) meeting has largely satisfied the long-standing demand of the commercial and industrial circles, who will feel more at ease in their operations, particularly exports, by being able to obtain bank loans at lower interest rates than previously. The interest rate was kept at 12 percent during the previous monetary policy.

Prime Minister Shehbaz Sharif is well aware of the decision’s beneficial effects on business, industries, agriculture, and investment if he has praised it. The aforementioned policy rate is the lowest since March 2022 and will go into effect on May 6, 2025. It was told that this decision was made in light of the country’s economy showing early signs of improvement, food prices stabilizing, and inflation rapidly declining. Core inflation fell to 8% in April, while inflation was only 0.3 percent. According to the Committee’s projections, inflation will progressively rise over the upcoming months before leveling off between the target range of 5 and 7 percent. Stronger liquidity will keep the current account in surplus.

The Committee also believes that a cautious approach to monetary policy is necessary given the growing global uncertainties surrounding trade tariffs and international political situations. Although the government is already concentrating on fiscal reforms, tax net expansion, and government institution improvements, the State Bank has emphasized the necessity of giving the issues more attention and moving the work along more quickly.