Pakistan's Economic Stagnation Despite Interest Cuts

Pakistan's economic growth remained stagnant in the first seven months of FY25, despite a 10% interest rate reduction by the State Bank. The decrease aimed to boost liquidity and growth; however, monetary expansion remained negative. Concerns about inflation and a potential current account deficit persist.

Despite a significant reduction in the interest rate by the State Bank of Pakistan, economic growth has failed to gain momentum in the first seven months of the current fiscal year, as reported by a prominent media outlet.

The interest rate was cut by 1% on January 27, setting it at 12%. This marked a drastic reduction from 22% the previous June. However, instead of boosting economic activity, the lowered rates failed to stimulate substantial growth. Liquidity shifted to the private sector and non-bank financial institutions, without the anticipated economic upturn.

Financial experts argue that the extensive liquidity granted to the private sector may eventually show economic benefits. However, the government is wary of inflation resurgence and an increase in imports, which could turn the current account surplus into a deficit. Recent data reveals negative monetary expansion in FY25, contrasting with the historical expansion figures in prior years.

(With inputs from agencies.)