The State Bank of Pakistan cut the key interest rate by 100 basis points to 19.5%, its governor said on Monday, a decision in line with expectations of investors and analysts.

The widely forecast move followed the bank’s decision to cut rates - from a record high of 22% - for the first time in nearly four years at its last meeting in June, as it signalled that soaring inflation was tempering.

Monday’s monetary policy meeting was the first since the government passed its budget and reached an agreement with the International Monetary Fund (IMF) for a $7 billion, 37-month loan programme.

The programme includes tough measures such as increased tax on farm income and raising electricity prices, prompting concern among poor and middle-class Pakistanis grappling with the risk of further inflation and the prospect of higher taxes.

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However, inflation has slowed in recent months. Pakistan’s consumer price index (CPI) rose 12.6% in June from a year earlier, giving the central bank room to cut rates, analysts said.

This meeting comes after the signing of a staff-level agreement with the International Monetary Fund (IMF) and the announcement of the federal budget.

In June, the SBP reduced the policy rate by 150 basis points to 20.5%, marking the first rate cut in four years. This move reflects the central bank’s efforts to stimulate economic activity, which has been sluggish for the past two years due to austerity measures implemented under an IMF bailout program.

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Pakistan has recently secured a new, longer-term IMF bailout program worth $7 billion, following the completion of a short-term program earlier this year. This new agreement aims to stabilize the economy and promote inclusive growth.

While progress has been made, Pakistan’s economic challenges are far from over. The upcoming MPC decision will be closely watched as a sign of the SBP’s commitment to supporting economic recovery.