Pakistan’s central bank opted to keep its key policy rate at 10.50% on Monday, the central bank governor said at a press briefing, rejecting market expectations for an additional rate cut following a surprise easing move in December.
The governor announced the decision after a meeting that follows a 50 basis-point reduction in December which had ended a four-meeting pause. That December cut was one step in a broader cycle of monetary easing that has totaled 1,150 basis points of reductions since mid-2024. By contrast, interest rates had reached a record peak of 22% in 2023.
Market participants had widely expected the central bank to reduce the policy rate by another 50 basis points at this meeting. A pre-meeting poll cited easing inflation, stronger foreign exchange reserves and a stabilising rupee as reasons for anticipating further policy accommodation. The governor’s announcement ran counter to those expectations.
Official data show Pakistan’s consumer price inflation slowed to 5.6% year-on-year in December. Prices on a month-on-month basis fell, a development attributed to lower costs for perishable food items. Despite the decline in headline inflation, non-food inflation remained elevated across both urban and rural areas, indicating uneven price dynamics within the economy.
An International Monetary Fund staff report cautioned against premature monetary easing as Pakistan implements a $7 billion loan programme. The IMF advised policymakers to remain data-dependent in order to anchor inflation expectations and to focus on rebuilding external buffers. That guidance was explicitly referenced as a restraint on hasty loosening of monetary policy.
The central bank’s decision to hold the policy rate keeps borrowing costs at the current level and signals a more cautious stance than the market had priced in. Observers will likely monitor forthcoming data on inflation, foreign exchange reserves and currency stability to assess whether the central bank resumes easing or maintains its current stance.
Context note: The governor made the policy announcement publicly at a press conference and the decision follows the December reduction that ended a prior pause in rate adjustments.