Monetary Policy Committee Announces Fifth Straight Rate Cut

Pakistan's central bank has cut its key policy rate by 200 basis points to 13% on Monday, marking the fifth consecutive reduction since June. This move is part of the country's ongoing efforts to revive a sluggish economy, with inflation showing signs of easing.

Aggressive Cuts Amid Global Easing Cycle

This year's series of rate cuts stand out as the most aggressive among emerging market central banks in the current easing cycle, excluding outliers like Argentina. The monetary policy committee stated that their measured approach to policy rate cuts is effectively managing inflationary and external account pressures while supporting sustainable economic growth.

Inflation Outlook and Economic Challenges

The bank anticipates inflation to average "substantially below" its earlier forecast range of 11.5% to 13.5% by 2025. However, the inflation outlook remains susceptible to risks, including government revenue shortfalls, food inflation, and rising global commodity prices. The bank noted that inflation may remain volatile in the near term before stabilizing within the target range.

Support from International Monetary Fund

Pakistan's economic recovery is being supported by a $7 billion facility from the International Monetary Fund (IMF) secured in September. The bank emphasized that "considerable efforts and additional measures" will be necessary for Pakistan to meet its annual revenue target, a crucial aspect of the IMF agreement.

Market Expectations and Previous Cuts

All 12 analysts surveyed by Reuters had predicted a 200 basis points cut, following a sharp decline in inflation. This latest move follows previous cuts of 150 basis points in June, 100 in July, 200 in September, and a record 250 basis points in November. These reductions have brought the rate down from an all-time high of 22% set in June 2023, marking a total of 900 basis points cut since June.