Finance Minister Hints at Policy Rate Reduction

Speaking at the 78th Independence Day of Pakistan and Marka-e-Haque celebrations held at the Rawalpindi Chamber of Commerce & Industry (RCCI) on Wednesday, Finance Minister Muhammad Aurangzeb suggested the possibility of a decrease in Pakistan’s policy rate later in the year. He cited moderating inflation and steady economic figures as justification.

“I am always careful that the policy rate and the market-based exchange rate are very much under the purview of the State Bank of Pakistan (SBP) and the Monetary Policy Committee (MPC). Given that, considering both core and average inflation, I personally believe there is scope for further adjustments to the policy rate.

“I am optimistic that within this calendar year, we will observe a downward adjustment in the policy rate,” he stated.

The central bank’s MPC opted to maintain the policy rate at 11% the previous month. This decision was unexpected by the market, which had largely anticipated a reduction of approximately 50 to 100 basis points (bps).

The committee indicated at the time that inflation had slowed to 3.2% year-on-year in June 2025, primarily due to decreased food costs, with core inflation also showing a slight decrease.

During his address, the finance minister pointed out that global financial institutions have commended the government’s strategy for economic reform. “S&P and Fitch have already provided upgrades, and I am hopeful that Moody’s, the third agency, will soon follow suit,” he added.

Shifting focus to trade growth, Aurangzeb highlighted the recently unveiled agreement with the United States, describing it as “a fantastic opportunity to leverage.”

The government anticipates that Pakistani exporters are set to realize a considerable competitive advantage within the US market. This follows the successful negotiation of a reduction in reciprocal tariffs from 29% to 19%, the lowest tariff rate in the region, offering a substantial opportunity to increase Pakistan’s exports to the US.

Furthermore, the finance minister spoke about his government’s economic achievements, mentioning that the economy’s size and overall income have grown, the financial sector is stable, there’s been a significant decrease in both fiscal deficit and inflation, the current account is showing a surplus, and remittance inflows have reached record levels.

“Both national security and economic stability are crucial for one another, and it is encouraging that we have achieved considerable economic advancement over the last year and a half,” Aurangzeb commented.

He noted that the government successfully decreased its debt servicing expenses by Rs1 trillion last year and aims to replicate this performance in the current fiscal year.

He also mentioned the ongoing transformation within the Federal Board of Revenue (FBR).

“I believe strongly that taxation must be brought to a level that is competitive within the region. We cannot place further burdens on the salaried class and the manufacturing sector,” Aurangzeb emphasized.