Central bank of Pakistan expected to lower interest rate during its monetary policy meeting scheduled for July 30 - survey findings suggest
The State Bank of Pakistan (SBP) is anticipating a significant interest rate cut at its upcoming Monetary Policy Committee (MPC) meeting on July 30, 2025. This decision is based on falling inflation rates, easing global oil prices, and the need to stimulate economic growth amid low GDP expansion[1][2][3].
Recent developments supporting this expectation include:
- The SBP has reduced treasury bill yields significantly, indicating room for policy easing[1].
- Inflation has dropped significantly from 11.1% in July 2024 to around 3.2% in June 2025, with predictions for it to remain low (3-3.5% in July 2025)[1]. Another forecast suggests inflation will average 5-7% in FY26, still low enough to allow rate cuts[2][3].
- Market surveys show that a majority (56%) of financial participants expect a 50-100 bps cut, while 37% expect no change[2][3]. Confidence in easing is growing compared to prior months.
- Industry groups such as the Salt Manufacturers Association of Pakistan are advocating for even larger cuts (3-4%) to reduce borrowing costs and stimulate investment[4].
Potential impact on Pakistan's economy and inflation:
- A cut in interest rates could lower financing costs for businesses and consumers, potentially boosting private sector investment and helping revive economic growth, which was a modest 2.6% in FY25[1][4].
- Lower rates can ease pressure on working capital, especially for Small and Medium Enterprises (SMEs), leading to expanded business activity and job creation[4].
- With inflation currently low and expected to remain so, the risk of reigniting inflation from a moderate rate cut appears limited. This may allow the SBP to support growth without triggering inflationary pressures[1][2][3].
- Lowered borrowing costs could improve the ease of doing business, support exports, and help stabilize fiscal deficits if growth improves sustainably[4].
In summary, the SBP is likely to cut the benchmark interest rate by 50 to 100 basis points, reflecting improved inflation dynamics and slowing growth. This easing is intended to stimulate economic activity, lower financing costs, and support a fragile recovery in Pakistan’s economy, with manageable risk to inflation given the current soft inflation outlook[1][2][3][4].
[1] "SBP to cut interest rate by 50-100 bps, say analysts" - The Express Tribune [2] "Pakistan's inflation falls to 3.2% in June 2025" - Dawn News [3] "IMF projects average inflation of 7.7% for FY26" - The News International [4] "SBP expected to cut interest rate on July 30" - Business Recorder
- The anticipated interest rate cut by the State Bank of Pakistan (SBP) could stimulate economic growth in the east of Pakistan, as lower financing costs for businesses and consumers might boost private sector investment, particularly among Small and Medium Enterprises (SMEs), potentially leading to job creation.
- As inflation rates are expected to remain low, around 3-5%, the SBP's interest rate cut is predicted to have a minimal effect on overall inflation, allowing for economic growth without triggering inflationary pressures.
- Artists, businesses, and financial institutions in the middle east might benefit from the SBP's anticipated interest rate cut, as lower borrowing costs could improve the ease of doing business, support exports, and stabilize fiscal deficits, ultimately fostering a more conducive environment for growth.
