State Bank of Pakistan maintains key policy rate

The State Bank of Pakistan has decided to keep its key policy rate at 22 percent, aligning its stance with developed economies to combat inflation. The bank aims to bring inflation down to the target range of 5-7% by September 2025 by maintaining a tighter monetary policy with positive real interest rates.

Despite calls from the business community to lower rates due to high positive interest rates and slowing inflation, the bank stands firm. It identifies threats to near-term inflation, including energy sector debt resolution, global oil price hikes, budget stabilization, and delayed monetary easing by advanced economies.

Advocates for rate cuts argue that with headline inflation expected to remain between 15-17% and signs of economic recovery, monetary easing is warranted. However, concerns over high inflation, potential currency pressure from increased imports, and global economic impacts of rate cuts are valid counterarguments.

The State Bank's decision to maintain positive real rates until inflation risks subside demonstrates a prudent approach to economic stability, prioritizing long-term sustainability over short-term relief.

The State Bank of Pakistan's commitment to holding its key policy rate at 22% reflects a cautious strategy to navigate inflationary risks and ensure economic stability. By resisting calls for immediate rate cuts, the bank aims to safeguard against potential currency pressures and maintain a resilient financial environment amidst global uncertainties.