KARACHI: The State Bank has slashed the interest rate by 100 basis points, negating the impression that tensions with India might keep the central bank cautious.

The decision was announced by the central bank`s monetary policy committee (MPC) on Monday.

Analysts had predicted that the interest rate would either remain unchanged or cut by 50 basis points amid India-Pakistan tensions.

A statement released after the committee meeting said`heightened global uncertainty, surrounding trade tariffs and geopolitical developments` needed a `measured monetary policy stance`.Since June 2024, the State Bank has cut the interest rate by 50 per cent or 1,100 basis points from 22pc to 11pc.

The main reason for this drastic cut was lower inflation which fell to 0.3pc in April.

Interest rate impacts both individuals and businesses.A lower interest rate means people get less profit on their savings account, but it also makes borrowing money from banks less costly.

Shankar Talreja of Topline Research said the rate is expected to come down to 10pc by December.

Experts believe low interest rate would attract private sector investment and accelerate economic growth.

In its announcement, the MPC kept its FY25 growth projection unchanged in the range of 2.5 to 3.5pc.

This outlook is, however, subject to risks, particularly from global uncertainty and unfavourable weather conditions for the upcoming Kharif season.

Inflation The committee said the real policy rate interest rate minus rate of inflation is expected to keep inflation within the target range of 5 to 7pe, while ensuring sustainable economic growth.

It noted that headline inflation fell to 0.3pc yearon-year in April, driven primarily by food and energy prices.

Moreover, core inflation declined 8pc year-on-year in April.

The committee anticipates inflation t o gradually inch up in the coming months and stabilisewithin the target range of 5 to 7pc.

Topline Research said the inflation is expected to reach 4.5 to 5.5pc during FY25 and 6.5pc during FY26.

The MPC noted that since its last meeting in March, the provisional real GDP growth for the second quarter of FY25 was reported at 1.7pc yearon-year, whereas Q1 growth was revised up to 1.3pc.

This brought the cumulative growth in the first half of the fiscal year to 1.5pc.

The MPC observed that large-scale manufacturing, which indicated goods produced by big industries, remained below expectations.

This is driven by a sizable contraction in a fewlow-weight segments and construction allied sectors, which are more than offsetting positive growth in key segments, such as garments, textiles, pharma and automobiles.

Debt and taxes The substantial current account surplus in March 2025, led mainly by recordhigh remittances, propelled the cumulative surplus to $1.9 billion during July-March FY25.

The MPC observed the lower import bill, mainly due to the reduction in global oil prices, along with the rising textile exports also contributed to the current account surplus in March.

For the current fiscal year, Pakistan`s total external debt servicing requirement was $26bn, ofwhich $16bn was expected to be rolled over.

Most rollovers have already been secured, while the remainder will be addressed in due course, the committee said.

Of the $10bn payable, $8.5bn has been repaid, with the remaining $1.3bn scheduled for repayment in May and June 2025.

The committee noted the FBR recorded a 26.3pc tax revenue growth yearon-year during July-April FY25 though it remained below target.

The higher Petroleum Development Levy is expected to further increase non-tax revenues.

Moreover, estimates suggested overall expenditures remained relatively contained during JulyMarch FY25.