Pakistan's Central Bank Slashes Key Rate Amid Uncertainty

Pakistan's central bank cut its policy rate by 100 basis points to 11% due to improved inflation outlook and resuming cuts from a high of 22%. The decision comes amid geopolitical tensions with India and before an IMF bailout review. Moody's warns of potential economic impacts.

In a strategic move to address economic concerns, Pakistan's central bank has cut its key policy rate by 100 basis points, adjusting it to 11%. This decision emerges in response to an improved inflation outlook, as the bank resumes its rate-cutting spree from a previous high of 22% following a halt in March.

While the decision defied expectations from most analysts surveyed by Reuters, with only a minority anticipating such a significant cut, the bank emphasized maintaining a measured approach amidst global trade and geopolitical uncertainty. The backdrop includes increased tensions with India, raising stakes for Pakistan's already fragile economy, which is also under evaluation by the International Monetary Fund for a tranche of its bailout program.

Economic forecaster Moody's cautioned about the potential adverse effects of heightened regional tensions on Pakistan's economy, highlighting risks to fiscal consolidation and foreign reserves. Despite these challenges, the central bank forecasts a growth in foreign exchange reserves and a stable inflation range, poised to facilitate economic growth.