KARACHI — Pakistan’s central bank is widely expected to reduce interest rates again in the coming weeks, following an unexpected cut in December that signalled a shift toward a more accommodative monetary policy amid easing inflationary pressures.
Market analysts say recent economic indicators have strengthened the case for further easing, particularly as headline inflation continues to cool and financial stability improves. The December decision surprised markets, breaking from expectations of a prolonged pause after months of tight monetary conditions.
Inflation Relief Opens Policy Space
Economists note that declining food prices, improved supply chains, and relative currency stability have contributed to a slowdown in inflation, giving policymakers room to support economic activity without reigniting price pressures.
Lower borrowing costs are expected to provide relief to businesses struggling with high financing expenses, while also encouraging investment and consumer spending after a prolonged period of economic contraction.
Balancing Growth and Stability
Despite optimism around rate cuts, experts caution that the central bank remains constrained by external risks, including global commodity prices, geopolitical uncertainty, and the need to maintain investor confidence. Maintaining a careful balance between growth support and macroeconomic stability remains a top priority.
Analysts also point to coordination with fiscal authorities and ongoing engagement with international lenders as key factors shaping future policy decisions.
Market Expectations Build
Financial markets have already begun pricing in another reduction, with bond yields adjusting and business sentiment improving slightly in anticipation of easier credit conditions. However, economists stress that any further cuts are likely to be gradual rather than aggressive.
As the economy seeks a firmer footing in 2026, monetary easing is increasingly viewed as a tool to stimulate recovery while consolidating recent gains against inflation.
This story has been reported by PakTribune. All rights reserved.