Pakistan Cuts Rates to Revive Economy as Inflation Cools

(Bloomberg) -- Pakistan cut its benchmark interest rate for a third consecutive meeting as slowing inflation gave policymakers space to revive economic growth.

The State Bank of Pakistan lowered the target rate by 200 basis points to 17.5%, according to a statement. The move was predicted by four out of 48 analysts in a Bloomberg survey.

“The MPC assessed the real interest rate to still be adequately positive to bring inflation down to the medium-term target of 5%–7% and help ensure macroeconomic stability,” the central bank said.

Cooling inflation has helped the monetary authority to lower borrowing cost by 450 basis points since June and support economic growth. Price gains eased to the lowest in almost three years last month and the central bank expects average inflation to fall below its earlier forecast range of 11.5%–13.5%.

Pakistan suffered one of Asia’s worst economic crisis, with the nation teetering on the brink of a default last year. Prime Minister Shehbaz Sharif’s government forecasts the economy to expand 3.6% in the year through June 2025 compared to a growth of 2.4% last year.

Easing inflationary pressures and the unfolding impact of recent policy rate cuts will support growth prospects in the industry and services sectors, the central bank said.

“If inflation stays in single digits there is room to cut interest rates by another 300-400 basis points in the next few quarters,” said Ruchir Desai, a fund manager at Asia Frontier Capital Ltd.

Sharif’s government has taken unpopular steps including record-high taxes and higher energy prices to secure the International Monetary Fund’s final approval for a new loan of $7 billion.

The IMF’s executive board is expected to meet and discuss Pakistan’s loan later this month, said Jameel Ahmad, governor at the State Bank of Pakistan, in an analyst briefing after announcing the policy rate. Authorities are also closing in on additional external financing to manage mounting debt.

Pakistan has debt payments of about $26 billion this year with $16 billion of that to be rolled over. The South Asian nation has repaid $4 billion.

(Updates with governor’s comments in ninth paragraph)