Karachi, July 25, 2025 – The State Bank of Pakistan (SBP) is expected to reduce the policy rate by 50 basis points to 10.5% in its upcoming monetary policy announcement on July 30, 2025.
Analysts at Arif Habib Limited believe the SBP has room to ease its policy due to declining inflation, stable external accounts, and falling bond yields. Headline inflation dropped to 3.2% in June from 3.5% in May, while core inflation eased to 7.5%. For FY 2025–26, average inflation is projected around 5.4%, comfortably within the SBP’s medium-term target of 5–7%.
This inflation trend gives the SBP space to lower the policy rate, though some risks remain. Recent floods could impact food supply and cause inflation to rise again in the coming months.
The external position has also improved. Pakistan posted a current account surplus of $328 million in June 2025, bringing the FY25 total to $2.1 billion—reversing last year’s $2.1 billion deficit. For FY26, a manageable deficit of $1.6 billion is expected.
These improvements have boosted investor confidence. S&P recently upgraded Pakistan’s credit rating to ‘B-’ with a stable outlook. The rupee has only weakened 0.4% so far this fiscal year, indicating relative stability against the dollar, though rising imports could add pressure.
Bond market trends also support a policy rate cut. Yields on government papers have fallen, especially in longer tenors, suggesting markets already anticipate easing.
A cut in the policy rate could also help industrial recovery. While large-scale manufacturing grew 2.3% in May 2025, overall output is still down 1.2% in 11MFY25.
In short, the SBP appears to have both the space and the support to ease its policy, but must remain cautious amid climate risks and potential import-driven pressures.