Monetary policy falls short of expectations: PRAC calls for bold action to revive economy

KARACHI: The Policy Research and Advisory Council (PRAC), led by Chairman Mohammad Younus Dagha, has expressed concern over the State Bank of Pakistan’s (SBP) recent decision to maintain the policy rate at 11 percent despite widespread expectations of a reduction.

While the Council acknowledges the SBP’s cautious stance, it stressed that the decision does not align with the 200 basis points reduction strongly recommended by PRAC. According to Dagha, the decision falls short of delivering the necessary stimulus to drive the country’s economic revival.

Headline inflation has steadily declined, reaching 3.2 percent in June 2025, with the FY25 average at 4.6 percent — marking the eleventh consecutive month of single-digit inflation. Despite this sustained disinflationary trend, the real interest rate remains elevated at 7.8 percent, one of the highest in the region. This high real interest rate continues to suppress private sector investment, inhibit industrial output, and undermine Pakistan’s competitiveness in the global economy.

In comparison, regional economies maintain considerably lower real interest rates: India (3.4%), China (2.9%), Bangladesh (1.5%), Vietnam (0.9%), and Indonesia (3.4%). These more accommodative monetary environments have supported investment and growth in peer economies—an opportunity Pakistan risks missing without bolder policy adjustments.

Copyright Business Recorder, 2025