KARACHI: Pakistan’s central bank will likely cut its key interest rate again on Monday in its first policy meeting following the signing of a staff level agreement with the International Monetary Fund and a new state budget, analysts said.
Pakistan and the IMF reached an agreement for the 37-month loan program this month. Tough measures such as raising tax on agricultural incomes and lifting electricity prices have prompted concern among poor and middle-class Pakistanis grappling with rising inflation and the prospect of higher taxes.
In June, Pakistan’s central bank cut its key interest rate by 150 bps from an all-time high of 22 percent, in a widely expected move, marking its first rate reduction in nearly four years in its effort to boost growth amid a sharp decline in retail inflation. However, inflation has slowed down.
Pakistan’s consumer price index (CPI) in May rose 11.8 percent from a year earlier, giving the central bank room to cut, analysts say. Only one analyst out of 14 predicted that rates would be held at 20.5 percent; the rest forecast a central bank cut. Seven analysts said they expected a 100 basis-points cut, five a 150 bps cut, while one analyst anticipated a 200 bps cut.
“An inflationary spike following the budget has not materialized as feared,” said Mustafa Pasha, chief investment officer at Lakson Investments. In June, the central bank warned of possible inflationary effects from the budget, saying limited progress in structural reforms to broaden the tax base meant increased revenue must come from hiking taxes.
The South Asian country set a challenging tax revenue target of 13 trillion rupees ($47 billion) for the ongoing fiscal year that started July 1, a near-40 percent jump from the previous year, and a sharp drop in its fiscal deficit to 5.9 percent of GDP from 7.4 percent for the previous year, to secure key funding from the IMF.
Pasha added that clarity on the IMF program, stability in the currency markets, and stable foreign inflows trickling into domestic debt and equities, provide “ample comfort to the SBP in continuing to ease the policy rate in July and beyond.”
However, Muhammad Ali, senior investment analyst at AKD securities said that the State Bank of Pakistan is likely to hold rates because it still needs to gauge food inflation for the next several months.
“Food commodities (e.g. wheat) have significant upside potential,” he said, adding that cuts of 150-200 bps each are possible in September and December policy meetings.
Pakistan’s central bank widely seen cutting rates
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Pakistan’s central bank widely seen cutting rates
- In June, Pakistan’s central bank cut its key interest rate by 150 bps from an all time high of 22 percent, in a widely expected move
- It marked Pakistan’s first rate reduction in nearly four years in an effort to boost growth amid sharp decline in retail inflation
Pakistan says repaid over $13.06 billion domestic debt early in last 14 months
- Finance adviser says repayment shows “decisive shift” toward fiscal discipline, responsible economic management
- Says Pakistan’s total public debt has declined from over $286.6 billion in June 2025 to $284.7 billion in November 2025
KARACHI: Pakistan has repaid Rs3,650 billion [$13.06 billion] in domestic debt before time during the last 14 months, Adviser to the Finance Minister Khurram Schehzad said on Thursday, adding that the achievement reflected a shift in the country’s approach toward fiscal discipline.
Schehzad said Pakistan has been repaying its debt before maturity, owed to the market as well as the State Bank of Pakistan (SBP), since December 2024. He said the government had repaid the central bank Rs300 billion [$1.08 billion] in its latest repayment on Thursday.
“This landmark achievement reflects a decisive shift toward fiscal discipline, credibility, and responsible economic management,” Schehzad wrote on social media platform X.
Giving a breakdown of what he said was Pakistan’s “early debt retirement journey,” the finance official said Pakistan retired Rs1,000 billion [$3.576 billion] in December 2024, Rs500 billion [$1.78 billion] in June 2025, Rs1,160 billion [$4.150 billion] in August 2025, Rs200 billion [$715 million] in October 2025, Rs494 billion [$1.76 billion] in December 2025 and $1.08 billion in January 2026.
He said with the latest debt repaid today, the July to January period of fiscal year 2026 alone recorded Rs2,150 billion [$7.69 billion] in early retirement, which was 44 percent higher than the debt retired in FY25.
He said of the total early repayments, the government has repaid 65 percent of the central bank’s debt, 30 percent of the treasury bills debt and five percent of the Pakistan Investment Bonds (PIBs) debt.
The official said Pakistan’s total public debt has declined from over Rs 80.5 trillion [$286.6 billion] in June 2025 to Rs80 trillion [$284.7 billion] in November 2025.
“Crucially, Pakistan’s debt-to-GDP ratio, around 74 percent in FY22, has declined to around 70 percent, reflecting a broader strengthening of fiscal fundamentals alongside disciplined debt management,” Schehzad wrote.
Pakistan’s government has said the country’s fragile economy is on an upward trajectory. The South Asian country has been trying to navigate a tricky path to economic recovery under a $7 billion loan from the International Monetary Fund.
