Table of Contents
Islamabad: The State Bank of Pakistan (SBP) delivered a larger-than-expected policy rate cut, lowering its benchmark interest rate by 100 basis points to 11%, as headline inflation eased to multi-month lows.
The move comes amid improving macroeconomic indicators and offers the central bank room to continue its easing cycle cautiously over the coming quarters.
Inflation and Monetary Outlook
According to S&P Global Market Intelligence, Pakistan’s inflation dynamics have improved significantly, providing scope for further monetary accommodation.
The research agency forecasts an additional 100bps cut before the end of 2025, barring any major external shocks.
Despite this positive inflationary trend, the SBP is expected to tread carefully due to persistent global uncertainties, including the impact of U.S. tariffs, fluctuating commodity prices, and weakened global demand, which could influence Pakistan’s external sector and currency outlook.
Manufacturing Activity and Price Pressures
Recent data from the S&P Global HBL Pakistan Manufacturing PMI® for March 2025 signals a mixed outlook.
Domestic production continued its recovery momentum, but for the first time since the index was launched in May 2024, new export orders declined.
The PMI also reflects growing input cost pressures, with firms highlighting increases in both energy and raw material prices.
These rising costs are likely to translate into higher output prices, suggesting that headline inflation—which bottomed out in April—may edge up slightly in the coming months.
Seasonal demand and energy price adjustments could also contribute to this upward pressure.
External Sector and Financing Needs
On the external front, the SBP’s foreign exchange reserves are forecast to reach approximately US$14 billion by the end of June 2025, supported by inflows from bilateral and multilateral partners.
However, gross external financing needs remain elevated, estimated at around US$27 billion annually.
Read More: Fitch Ratings: Pakistan’s Credit Profile Hinges on Structural Reform Progress
Although a significant portion of this has been addressed through rollovers totaling US$16 billion, residual repayments of over US$8 billion still need to be met in the current fiscal year (FY2025) and an additional US$9 billion in FY2026.
Continued progress on Pakistan’s IMF-supported program and consistent engagement with traditional bilateral partners such as China and the Gulf states, as well as institutions like the World Bank and Asian Development Bank, will be critical to closing the financing gap.
S&P Global Market Intelligence expects that remaining payments between US$1.3 billion to US$1.5 billion for the rest of FY2025 are manageable, assuming that disbursements and further rollovers proceed as planned.
Also Read: Moody’s Upgrades Ratings for 5 Pakistani Banks
Analysis by S&P Global Market Intelligence. Not to be confused with S&P Global Ratings, it is a separate division of S&P Global. Please credit S&P Global Market Intelligence for any citations.
