Pakistan's Central Bank Cuts Interest Rate Amid Falling Inflation

Pakistan's central bank reduced its key interest rate by 150 basis points to 20.5% in response to a sharp decline in retail inflation, its first cut in almost four years. This move, anticipated ahead of the annual budget, follows an IMF-bailout-induced economic slowdown and decreasing inflation rates.

Pakistan's central bank cut its key interest rate by 150 basis points on Monday in a widely expected move, marking its first rate reduction in nearly four years in its effort to boost growth amid a sharp decline in retail inflation. The decision to cut the key rate to 20.5% comes two days ahead of Pakistan's annual budget and a week after data showed inflation slowed to a 30-month low of 11.8% in May.

The State Bank of Pakistan last changed rates in an emergency meeting in late June last year, when it raised rates by 100 basis points to a record high of 22%. Economic activity slowed over the last two years in Pakistan as it implemented tough reforms under an International Monetary Fund (IMF) bailout in a bid to stabilise its crashing economy.

Pakistan's Finance Minister Muhammad Aurangzeb, speaking at a business conference in China last week, said he expected rates to come down in the face of falling inflation.