The monetary policy is due next Monday. The committee, chaired by the SBP Governor, has already eased the policy rate by 900 bps (or 41 percent) over the last five reviews, as inflation nosedived. Real interest rates (irrespective of the lens used) remain well into positive territory. Economic growth is yet to revive, although there are some early signs of demand picking up.

The question is how much further easing is warranted without triggering pressure on balance of payments. It is imperative to maintain a delicate balance.

The impact of monetary easing or tightening on economic demand and, in turn, inflation comes with a lag—historically, it has taken 6–18 months in Pakistan. Remember, interest rates peaked in June 2023, and their impact on receding inflation and tapering money supply became visible from December 2023 onwards.

The easing cycle began in June 2024, and its effects are expected to materialize in the coming quarters. The SBP must adopt a careful and measured approach, as inflation has been highly volatile in recent years.

Published growth numbers (which come with a lag) show little sign of revival. GDP grew by 0.9 percent in 1QFY25, with the industrial sector contracting. In 5MFY25, Large-Scale Manufacturing (LSM) declined by 1.3 percent.

Interestingly, growth........

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