As Pakistan navigates the fragile terrain of post-crisis recovery, the State Bank of Pakistan (SBP) has opted to pause its monetary easing cycle, keeping the benchmark interest rate unchanged at 11% in its July 2025 policy announcement. While markets were widely expecting a further 50 basis point cut—marking a continuation of the easing trend that began in mid-2024—SBP’s decision to hold suggests a more cautious and calibrated approach in the face of competing macroeconomic signals.

This policy pause comes despite significant disinflationary gains. After peaking at an alarming 38% in mid-2023, headline inflation has plunged to 3.2% in June 2025—the lowest year-on-year rate since 2016. The average inflation for FY2024–25 stands at just 4.49%, comfortably within SBP’s medium-term target band of 5–7%. The rapid cooling of prices has been driven by tighter monetary conditions, stable food and fuel supplies, a stronger Pakistani rupee, and increased foreign inflows. As of July 2025, SBP reserves have crossed $14 billion, bolstered by disbursements from the IMF, World Bank, and strategic partners such as Saudi Arabia and the UAE.

Despite this positive backdrop, the SBP has chosen restraint. Since June 2023, when the policy rate stood at an all-time high of 22%, the central bank had cut rates by a cumulative 1,100 basis........

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