The State Bank of Pakistan’s Monetary Policy Committee has trimmed the benchmark interest rate by 50 basis points to 9 percent, extending an easing cycle that has now brought borrowing costs down from the 22 percent peak reached during the height of the country’s inflation crisis. The central bank cited a sustained decline in headline inflation, which has hovered in the low single digits for several consecutive months, as the primary driver behind the decision, along with a stable exchange rate and improving foreign exchange reserves.

In its accompanying statement, the MPC noted that core inflation, which strips out volatile food and energy prices, has also trended downward, giving policymakers confidence that price pressures are structurally easing rather than reflecting a temporary base effect. The committee pointed to improved agricultural output, particularly in wheat and sugarcane, and a relatively calm global commodity market as supporting factors. Governor Jameel Ahmad told reporters after the announcement that the central bank would continue to calibrate policy on a meeting by meeting basis, but that the balance of risks had shifted enough to justify further support for economic activity.

Businesses and industry bodies broadly welcomed the rate cut, with representatives of the All Pakistan Textile Mills Association and the Federation of Pakistan Chambers of Commerce and Industry saying lower financing costs would help revive stalled expansion projects and ease pressure on working capital, particularly for small and medium enterprises that have struggled with high borrowing costs for nearly three years. Real estate developers and the automobile sector, both of which have seen depressed sales amid tight credit conditions, also described the move as a positive signal, though several noted that a single rate cut would not by itself restore financing to pre-crisis levels.

Some economists have urged caution, warning that a rapid pace of easing could reignite import demand and put renewed pressure on the current account, particularly with the trade deficit having widened modestly in recent months as domestic demand recovers. Analysts at several brokerage houses said the central bank appeared to be threading a careful line between supporting growth and preserving the macroeconomic stability secured under the ongoing International Monetary Fund programme, noting that further cuts would likely depend on how the current account and reserve position evolve over the coming quarters.

The rate cut comes as Pakistan’s economy shows broader signs of stabilisation, with GDP growth for the outgoing fiscal year provisionally estimated in a range that officials have described as the strongest in several years, driven by a recovery in large scale manufacturing and services. The stock market extended its rally in the hours following the announcement, with the benchmark KSE-100 index closing at a fresh record high, as investors priced in expectations of continued monetary easing and improved corporate earnings.

Finance Minister Muhammad Aurangzeb welcomed the decision, linking it to the government’s broader stabilisation programme and describing lower interest rates as a natural consequence of fiscal discipline and structural reforms undertaken over the past two years. Opposition economists, however, have argued that the benefits of macroeconomic stabilisation have yet to translate into meaningful relief for ordinary households, pointing to still-elevated utility bills and stagnant real wages as evidence that headline inflation figures do not fully capture the cost of living pressures facing lower income groups.

The State Bank’s next policy announcement is scheduled for September, and analysts widely expect the committee to maintain its data-dependent approach, with particular attention to the trajectory of the rupee, external financing flows, and progress on structural benchmarks under the IMF’s Extended Fund Facility.

— Compiled by the Weekly PK Staff Desk