Pakistan central bank has room to slash interest rate by 100bps by December — analysts

A man withdraws cash from an automated teller machine (ATM) in Peshawar, Pakistan on April 1, 2019. (REUTERS/File)
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Updated 25 July 2025
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Pakistan central bank has room to slash interest rate by 100bps by December — analysts

  • Central bank’s Monetary Policy Committee to meet on July 30 to announce policy rate
  • Rate cut to reduce financing costs, boost productivity and support recovery, says analyst

KARACHI: Pakistan’s central bank has room to slash the key interest rate by 100 basis points by December, financial analysts said on Thursday, noting that the move would reduce financing costs and boost productivity in the country.

The central bank’s Monetary Policy Committee (MPC) is scheduled to hold its meeting on July 30 to decide about the key interest rate. A majority of financial market participants expect the central bank to cut its key interest rate by 50 to 100 basis points next week, as per a report by Karachi-based brokerage firm Topline Securities. A majority, 56 percent, expect a 50 to 100 basis points rate cut next week, the report said while thirty-seven percent expect the policy rate to remain unchanged at 11 percent.

The findings reflect growing market confidence that declining inflation and easing global oil prices have created space for monetary easing. In its last meeting, the State Bank of Pakistan (SBP) kept the policy rate unchanged at 11 percent, citing uncertainty over the federal budget and regional tensions in the Middle East. This time, a stronger consensus appears to be building toward a rate cut.

“We are expecting inflation to average 5-7 percent in FY26, leaving a room of a total of 100 basis points cut in our view after adjusting it for real rate of 400 basis points,” Shankar Talreja, Topline Securities’ head of research, told Arab News.

Talreja said he expected the SBP to announce a policy rate cut of 50 basis points when it meets next week.

“We are expecting the policy rate to bottom out at 10 percent by December 2025,” he said.

Shahid Ali Habib, the chief executive officer at brokerage research firm Arif Habib Ltd., said he also expected the interest rate to be slashed by 50 basis points. The SBP has slashed the key policy rate by an aggressive 11,000 points from a record 22 percent over the last one year, as inflation eases in the South Asian country.

“A rate cut now could reduce financing costs, boost productivity and support recovery after a modest 2.68 percent GDP growth in FY25,” Habib said.

The expectations come as Prime Minister Shehbaz Sharif’s government aims to increase the GDP of Pakistan’s debt-ridden economy by 4.2 percent this year, up from the 2.7 percent last fiscal year.

Backed by the International Monetary Fund’s $7 billion loan, Pakistan’s economy has stabilized in recent months with inflation ebbing to 3.2 percent in June and the current account showing a surplus of $328 million last month.

Pakistan’s easing inflationary pressures have been the main driving force behind the central bank’s aggressive policy rate cuts. Habib said Pakistan’s macroeconomic situation was improving, saying that he sees FY26 inflation averaging on 5.4 percent and core inflation at around 8 percent this fiscal year.

However, Talreja said the decline in borrowing costs could be a “non-event” for Pakistan’s booming stock market, which has already factored in the expected change.

Pakistani stocks have risen 19 percent since January with the benchmark KSE-100 Index hitting a record 140,585 points during intraday trading last week, according to the Pakistan Stock Exchange data.

“The majority of the impact is already taken by the markets, the treasury bills are trading at 10.7 percent which already incorporates around 50 basis points cut,” Talreja noted.

Talreja said if slashed further, the policy rate will nonetheless provide some respite to businesses as the cost of financing will further come down.

“Honestly, either 50 or 100 basis points won’t matter significantly as we have already eased over 11,00 basis points in the last one year,” the analyst said.


Pakistan accuses India of manipulating Indus waters, warns of risks to regional peace

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Pakistan accuses India of manipulating Indus waters, warns of risks to regional peace

  • India announced in April it was putting the Indus Waters Treaty in abeyance over a gun attack in disputed Kashmir it blamed on Pakistan
  • Islamabad says it has witnessed ‘unusual, abrupt variations’ in the flow of Chenab river, accusing New Delhi of ‘material breaches’ of treaty

ISLAMABAD: Pakistan on Friday accused India of manipulating flows of Indus waters in violation of a 1960 water-sharing treaty, warning that unilateral actions over the transboundary waters could heighten tensions and pose risks to regional peace.

The Indus Waters Treaty (IWT), mediated by the World Bank, divides control of the Indus basin rivers between the two nuclear-armed neighbors. India said in April it was holding the treaty “in abeyance” after a gun attack in Indian-administered Kashmir killed more than 26 tourists. New Delhi blamed the assault on Pakistan, Islamabad denied it.

The treaty grants Pakistan rights to the Indus basin’s western rivers — Indus, Jhelum, and Chenab — for irrigation, drinking, and non-consumptive uses like hydropower, while India controls the eastern rivers — Ravi, Beas, and Sutlej — for unrestricted use but must not significantly alter their flow. India can use the western rivers for limited purposes such as power generation and irrigation, without storing or diverting large volumes, according to the agreement.

Speaking at a televised press briefing, Pakistani Deputy Prime Minister Ishaq Dar accused New Delhi of “material breaches” of the IWT that may have consequences for regional stability, citing “unusual, abrupt variations” in the flow of Chenab river from April 30 to May 21 and from Dec. 7 to Dec. 15.

“These variations in water flows are of extreme concern for Pakistan as they point to unilateral release of water by India into River Chenab. India has released this water without any prior notification or any data- or information-sharing with Pakistan as required under the treaty,” he said.

“India’s most recent action clearly exemplifies the weaponization of water to which Pakistan has been consistently drawing attention of the international community.”

There was no immediate response from New Delhi to the statement.

Dar said this water “manipulation” occurs at a critical time in Pakistan’s agricultural cycle and directly threatens the lives and livelihoods as well as food and economic security of its citizens.

He shared that Indian actions prompted Indus Water Commissioner Mehar Ali Shah to write a letter to his Indian counterpart, seeking clarification on the matter as provided under the Indus Waters Treaty.

“We expect India to respond to the queries raised by Pakistan’s Indus water commissioner, refrain from any unilateral manipulation of river flows, and fulfill all its obligations in letter and spirit under the Indus Waters Treaty provisions,” the Pakistani deputy premier said.

Dar also accused India of consistently trying to undermine the IWT by building various dams, including Kishenganga and Ratle hydropower projects, which he said sets “a very dangerous precedent.”

“Alarmingly, India is now subverting the treaty’s own dispute resolution mechanism by refusing to participate in the Court of Arbitration and neutral expert proceedings. India is pursuing a deliberate strategy to sabotage the well-established arbitration process under the treaty provisions,” he said.

The South Asian neighbors have been arguing over hydroelectric projects on the shared Indus river system for decades, with Pakistan complaining that India’s planned hydropower dams will cut its flows.

In August, the International Court of Arbitration rendered an award on issues of general interpretation of the IWT, explaining the designed criteria for the new run-of-river hydropower projects to be constructed by India on the western rivers of Chenab, Jhelum and Indus, which Islamabad said vindicated its stance.

In its findings, the Court of Arbitration declared that India shall “let flow” the waters of the western rivers for Pakistan’s unrestricted use. In that connection, the specified exceptions for generation of hydro-electric plants must conform strictly to the requirements laid down in the Treaty, rather than to what India might consider an “ideal” or “best practices approach,” according to the Pakistani foreign office.

“Pakistan would like to reiterate that Indus Waters Treaty is a binding legal instrument that has made an invaluable contribution to peace and stability of South Asia,” Dar said.

“Its violation, on the one hand, threatens the inviolability of international treaties and on the other, it poses serious risks to regional peace and security, principles of good neighborhood, and norms that govern inter-state relations.”