The State Bank of Pakistan announced on Monday that it had decided to cut the interest rate by 150 basis points (bps) to 20.5 per cent.
The decision to cut the key rate to 20.5pc comes ahead of the annual budget and a week after data showed inflation slowed to a 30-month low of 11.8pc in May.
In a statement, the SBP said the central bank’s Monetary Policy Committee (MPC) had met earlier today and reviewed the current economic developments.
Regarding the decision, the committee noted that “underlying inflationary pressures are also subsiding amidst tight monetary policy stance, supported by fiscal consolidation”.
At the same time, the MPC highlighted “some upside risks to the near-term inflation outlook associated with the upcoming budgetary measures and uncertainty regarding future energy price adjustments”.
Previously, in a survey conducted by Topline Securities, some 90pc of participants expected a rate cut, but they differed over the extent of the reduction, with estimates ranging from 100 to 300 basis points.
Experts said the State Bank would be again cautious despite room for a significant rate cut due to a large difference between the headline consumer inflation of 11.8pc and the previous policy rate of 22pc.
More to follow