Pakistan Holds Benchmark Rate at 12%, Prioritizes Reforms

Pakistan's central bank has decided to maintain its benchmark interest rate at 12%, halting a series of rate cuts that had totaled 1,000 basis points since June 2024. This unexpected move comes amidst cooling inflation, which has recently dropped to single digits after peaking at 38% in May 2023, and reflects a shift towards prioritizing economic reforms over monetary policy. Economists emphasize the need for fiscal reforms to boost private sector investment and address structural issues, particularly in the energy sector and taxation. While the economy grew by 0.9% in the first quarter, challenges such as high energy tariffs and a burgeoning trade deficit, which increased 18% year-on-year to $2.313 billion in January, remain pressing. Analysts have mixed expectations about future rate cuts, with some suggesting that the central bank may resume easing later in the fiscal year if economic conditions allow. The International Monetary Fund's ongoing assessment of Pakistan's performance under its $7 billion loan program adds another layer of complexity to the economic landscape.