On the external front, SBP’s foreign exchange reserves are projected to reach $14 billion by end-June.
SBP Slashes Interest Rates to 11% as Inflation Eases, Eyes Further Cuts by Year-End. In a surprise move, the State Bank of Pakistan (SBP) delivered a larger-than-expected policy rate cut, bringing the benchmark interest rate down by 150 basis points to 11%, as headline inflation bottoms out and macroeconomic indicators show signs of stabilization.
The decision comes amid improved inflation dynamics and a stronger external position. According to S&P Global Market Intelligence, this latest cut paves the way for further easing, with another 100 basis points of rate reductions projected by the end of 2025. However, the SBP is expected to proceed cautiously, balancing domestic recovery efforts against external headwinds, including global economic uncertainty, U.S. tariffs, and weaker international demand.
Manufacturing activity remains mixed. The S&P Global HBL Pakistan Manufacturing PMI® for March 2025 indicates that domestic production continues to expand, but export orders shrank for the first time since the index’s inception in May 2024. Input and energy costs are rising, which may lead to renewed upward pressure on prices in the coming months, despite the recent inflation trough in April.
On the external front, SBP’s foreign exchange reserves are projected to reach $14 billion by end-June. Yet, gross external financing needs remain high at approximately $27 billion annually. While Pakistan has secured $16 billion in rollover agreements for fiscal year 2025, it still faces over $8 billion in residual debt payments this fiscal year and another $9 billion in fiscal 2026. Continued support from the IMF, bilateral partners, and multilateral lenders will be crucial to bridging the financing gap.
Analysts say the SBP’s bold rate cut reflects growing confidence in the country’s macroeconomic trajectory but emphasize that prudent management and sustained policy support will be key to maintaining stability.
