Monetary Policy Committee of the State Bank of Pakistan. has decided to cut the policy rate by 100 bps to 11 percent, effective from May 6, 2025.
Policy Decision
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MPC cut the policy rate by 100 bps to 11%, effective May 6, 2025.
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Decision driven by sharp decline in inflation, especially food and electricity prices.
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Core inflation also declined due to a favorable base effect and moderate demand.
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MPC emphasized a measured stance amid global uncertainty (e.g., tariffs, geopolitics).
Macroeconomic Developments
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Real GDP growth: Q2-FY25 at 1.7%, revised Q1 up to 1.3% from 0.9%.
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Current account surplus: $1.2 billion in March, cumulative $1.9 billion in July–March FY25.
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Business and consumer sentiment continued to improve.
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Tax shortfall widened; global uncertainty led to IMF’s downward revision of global growth forecasts.
Real Sector
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H1-FY25 GDP growth at 1.5%, in line with expectations.
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Positive momentum in vehicle and fuel sales, electricity generation, and confidence indicators.
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LSM growth lagging due to weak segments (construction-related); some strength in garments, pharma, and autos.
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Wheat output above target but below last year’s level.
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FY25 growth projection retained at 2.5–3.5%, with risks from global uncertainty and weather.
External Sector
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Strong remittances and lower oil prices supported the current account.
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April trade deficit rose to $3.4 billion.
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SBP FX reserves expected to reach $14 billion by June 2025, contingent on official inflows.
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MPC sees reserves buildup continuing in FY26 but flags risks from the global environment.
Fiscal Sector
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FBR tax revenue up 26.3% y/y (July–April) but below target.
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PDL rate hikes expected to boost non-tax revenue.
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Spending contained so far; overall fiscal deficit likely near target.
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Primary surplus target remains challenging.
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MPC highlighted need for fiscal reforms, especially expanding tax base and SOE reform.
Money and Credit
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Broad money (M2) growth rose to 13.3% y/y by April 18.
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Driven by private sector credit growth (12.6% y/y) and Eid-related currency circulation rise.
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Borrowing up in textiles, refineries, chemicals, and fertilizers; also in autos and personal loans.
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Reserve money growth at 13.1%.
Inflation
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April headline inflation dropped to 0.3% y/y, led by food and energy price declines.
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Core inflation fell to 8.0% y/y, after months at ~9%.
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Inflation expected to rise modestly but stabilize within 5–7% target range.
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Risks remain from food price volatility, energy price changes, and global supply disruptions.
