Pakistan unexpectedly halts easing cycle, keeps key interest rate at 12%

Pakistan’s central bank unexpectedly halted its easing cycle on Monday, keeping its key policy rate at 12%, saying there could still be price risks including from an escalation in global tariffs even though inflation was falling for now.

- 

The central bank had slashed rates by 1,000 bps from an all time high of 22% in June 2024, to try and revive economic growth, while navigating reforms under a $7 billion facility from the International Monetary Fund agreed in September.

The State Bank of Pakistan (SBP) said in a statement that the monetary policy committee had noted that despite a better than expected drop in the inflation rate last month, risks remained.

“Notwithstanding this decline, the Committee assessed the risks posed by the inherent volatility in these prices to the current declining trend in inflation,” the statement said.

“On the global front, uncertainty has increased significantly amidst the ongoing tariff escalations, which may have implications for global economic growth, trade and commodity prices,” the bank added.

Pakistan has been one of the most aggressive central banks among emerging markets during the current easing cycle and has topped the 625 bps in rate cuts it made in 2020 during the COVID-19 pandemic.

“On balance, the MPC (monetary policy committee) assessed the current real interest rate to be adequately positive on forward-looking basis to sustain the ongoing macroeconomic stability,” the bank said in its statement.