Pakistan's Central Bank Slashes Rates Amidst Economic Revival

Pakistan's central bank reduced its benchmark interest rate by 100 basis points to 12%, anticipating economic growth. This follows a series of rate cuts from a peak of 22%. The bank projects inflation to ease and GDP growth between 2.5%-3.5%, but notes protectionist risks could impact inflation.

In a strategic move to stimulate economic activity, Pakistan's central bank announced a benchmark interest rate cut of 100 basis points, bringing the rate down to 12%. This decision aligns with market expectations, as the bank maneuvered to foster growth following a steep rate reduction from an earlier high of 22% last June. Such aggressive cuts place Pakistan among the boldest central banks within emerging markets.

Governor Jameel Ahmad highlighted future easing of inflation, projecting an average rate between 5.5% to 7.5% for the fiscal year. Despite a significant drop in consumer inflation to 4.1% last December, core inflation persists at elevated levels. Accordingly, the bank's monetary policy committee emphasized a cautious stance to maintain price stability, crucial for sustainable growth.

Looking ahead, Pakistan's economy is set to grow, with GDP forecasts between 2.5% and 3.5% over the year. This is expected to bolster foreign exchange reserves, potentially reaching beyond $13 billion by June 2025. However, the central bank warned of risks linked to global protectionist measures that may influence inflation dynamics.