Pakistan's Resilient Fiscal Maneuver: Aggressive Rate Cuts Propel Economic Revival

Pakistan's central bank has aggressively reduced its key policy rate by 900 basis points in 2024 to combat inflation and stimulate economic growth. This move marks one of the deepest cuts among emerging markets. Despite easing inflation, risks from government revenue shortfalls and global commodity prices persist.

On Monday, Pakistan's central bank executed a 200 basis point slash in its key policy rate, bringing it down to 13%. This marks the fifth consecutive reduction since June as the country endeavors to rejuvenate a sluggish economy amidst easing inflation pressures.

In a sweeping gesture, the central bank has reduced rates cumulatively by 900 basis points throughout 2024, surpassing the 625 basis points cut during the pandemic in 2020. The monetary policy committee highlighted that this strategic yet measured rate reduction effectively tempers inflationary and external pressures while fostering sustainable economic growth.

Despite positive signals, the central bank acknowledged that inflation hazards persist, particularly from potential government revenue shortfalls and rising global commodity prices. Analysts expect rate cuts to bolster economic revival, though sticky core inflation and fiscal challenges remain.

(With inputs from agencies.)