Pakistan Slashes Interest Rate to 11%  As Trump’s Tariffs Push Economy To The Brink

The State Bank of Pakistan (SBP) slashed its benchmark interest rate by 100 basis points to 11% on Monday. The surprise monetary easing comes as Pakistan faces the dual blow of sweeping U.S. tariffs and escalating regional geopolitical tensions.

The central bank’s rate cut was more aggressive than most forecasts. Out of 36 economists surveyed by Bloomberg, only 13 expected a reduction, and just three accurately predicted the scale of the move. The SBP justified the cut by citing “heightened global uncertainty surrounding trade tariffs and geopolitical developments” that could derail Pakistan’s fragile economic recovery.

At the center of this economic turbulence is U.S. President Donald Trump ’s new 29% tariff on a wide range of imports. These levies are expected to hit Pakistan’s core export sectors — notably textiles, agriculture, and manufactured goods — which are vital for its foreign exchange earnings. Analysts warn that the tariff shock could erode export competitiveness, squeeze local industries, and amplify the country’s already precarious balance of payments crisis.

 

Meanwhile, inflation has eased from record highs over the past year, providing the SBP with some breathing room to adopt a looser monetary stance. However, the central bank has cautioned that price pressures may return in the coming months due to supply chain disruptions and unfavorable weather conditions.

Further complicating the outlook, tensions with India have flared again following a deadly attack in Indian-administered Kashmir that claimed over two dozen lives. Fears of retaliatory measures and military escalation could further destabilize the region, adding another layer of uncertainty to Pakistan’s already vulnerable position.

Despite these risks, the SBP projects GDP growth between 2.5% and 3.5% for the current fiscal year ending in June, with hopes of stronger expansion in 2025. However, the forecast is highly contingent on stabilizing external conditions and securing international financial support.

On that front, Pakistan is awaiting a critical boost: the International Monetary Fund (IMF) is scheduled to meet this week to approve a $1 billion loan tranche, along with a new $1.3 billion Resilience and Sustainability Facility. These inflows are expected to shore up foreign exchange reserves, ease currency pressures, and provide a short-term buffer against global shocks.

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