The State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 12%, despite expectations of a cut. The business community, particularly FPCCI, has criticized the decision, calling it a setback for economic growth. The central bank cited inflation risks and external account pressures as key reasons behind its cautious stance. This structure ensures high readability, SEO ranking, and engagement. Let me know if you'd like any refinements! 🚀
KARACHI: The State Bank of Pakistan (SBP) has decided to keep the policy rate unchanged at 12%, despite widespread expectations of a rate cut. The decision, announced in the Monetary Policy Committee (MPC) meeting on Monday, has sparked concerns among the business community, which had been pushing for a minimum 5% reduction to support economic growth.
Why Did SBP Maintain the Policy Rate?
According to the central bank’s press release, inflation in February 2025 was lower than expected due to a decline in food and energy prices. However, the MPC expressed concerns over volatility in these prices, cautioning that any uptick in food and energy costs could lead to a resurgence of inflation.
Additionally, core inflation remains persistently high, making it difficult for the SBP to ease monetary policy aggressively. Other key factors influencing the decision include:
- External Account Pressures: The current account deficit stood at $0.4 billion in January 2025, reversing the surplus trend of the previous months.
- Weak Financial Inflows & Declining FX Reserves: The central bank noted a reduction in foreign exchange reserves, raising concerns over external financing.
- Mixed Economic Activity: While high-frequency indicators suggest economic recovery, large-scale manufacturing saw a decline in H1-FY25, despite a 19.1% month-on-month increase in December 2024.
- Tax Revenue Shortfall: The fiscal position remains under stress as tax collection fell below target in January and February 2025.
The MPC stated that the earlier reductions in the policy rate were now materializing, and emphasized the need for a cautious monetary policy stance to keep inflation within its target range of 5-7%.
Business Community Reacts: “Deeply Disappointed”
The business community, particularly the Federation of Pakistan Chambers of Commerce & Industry (FPCCI), has voiced strong discontent over the SBP’s decision to keep interest rates high.
Atif Ikram Sheikh, President FPCCI, in a press statement, criticized the central bank’s monetary policy, stating:
“The business, industry, and trade community of Pakistan is disappointed with the monetary policy as it continues to be based on a heavy premium vis-Ă -vis core inflation. The SBP did not change the policy rate at its Monday meeting. Currently, inflation, as per the government’s own statistics, stood at 1.5% in February 2025; but the policy rate is 12.0% as of today – which reflects a premium of 1,050 basis points vis-Ă -vis core inflation.”
What’s Next for the Economy?
With global uncertainty rising due to tariff escalations and slower monetary easing by advanced and emerging economies, Pakistan’s economic policymakers face a tough balancing act. While a lower interest rate could stimulate investment and business activity, the SBP remains cautious due to persistent inflation risks and external account vulnerabilities.
For now, businesses will have to brace for a high-interest rate environment, while policymakers continue efforts to stabilize inflation and ensure long-term economic growth.