SBP Links Future Interest Rate Cuts to IMF Review Outcome

Governor State Bank of Pakistan, Jameel Ahmad, has stated that any further cuts in interest rates will depend on the outcome of the ongoing International Monetary Fund (IMF) review and the economic impact of the recent floods, even as inflation shows signs of stability. Speaking to Bloomberg, State Bank of Pakistan (SBP) Governor Jameel Ahmad said the central bank remains “very cautious” on monetary policy despite having already eased after an extended period of tightening. He noted that renewed price pressures from floods and external funding risks could limit further policy easing. The Governor projected that inflation could temporarily exceed the upper limit of the 5%–7% medium-term target range in early 2026, but will remain within that range on average over the current and next fiscal years. The comments come ahead of the next Monetary Policy Committee (MPC) meeting on October 27, while the IMF team continues its second review of Pakistan’s $7 billion loan program. Last month, the SBP kept its benchmark rate unchanged for a third straight meeting after catastrophic monsoon floods killed more than 1,000 people, displaced 4.2 million, and damaged around 8% of the cropped land, pushing up food prices. Ahmad said the SBP’s tight monetary policy had been “Instrumental in bringing inflation under control,” adding that the policy rate remains substantially positive in real terms and that coordination between monetary and fiscal policy is showing “good progress.” Pakistan’s economy, which narrowly avoided default two years ago, is now regaining stability with IMF funding helping repay debt and build reserves. The economy is projected to grow 4.2% in FY2025, up from 2.7% last year, while inflation has dropped sharply from a record 38% in 2023, allowing the SBP to halve its policy rate to 11%. The governor said the IMF program is “progressing well,” adding that Pakistan has outperformed its targets on foreign exchange reserves. The SBP has bolstered reserves by purchasing about $20 billion from the interbank market over the past three years, a move Ahmad called “strategic,” saying it ensured that recent $500 million Eurobond repayments did not strain reserves. SBP reserves have grown nearly fivefold from their 2023 low of $3 billion, while the Pakistani rupee has remained largely stable since 2024 — making it Asia’s most stable currency, according to Bloomberg’s index of regional peers. Ahmad also highlighted improving trade and investment ties with the United States, noting that Pakistan’s 19% tariff rate on exports to the US is now the lowest in South Asia, helping attract renewed interest from international buyers. Exporters in the textile sector are reporting increased inquiries, which Ahmad said could soon translate into firm orders. He further noted that the US has expressed interest in Pakistan’s oil and mining sectors, with a Washington investor conference scheduled later this month expected to attract new American investment. Meanwhile, the government is moving toward legalizing cryptocurrency, which Ahmad said would ensure tighter regulation and reduce risks through proper vetting of new entrants.