In a move aimed at stimulating economic activity, the State Bank of Pakistan (SBP) has lowered its key policy rate by 100 basis points, bringing it down to 19.5 per cent.
SBP Governor Jameel Ahmad announced the rate cut during a press conference on Monday, highlighting that June 2024 inflation figures were slightly better than expected. He noted that the inflationary effects of the Federal Budget for FY25 aligned with earlier predictions.
Furthermore, Ahmad pointed to an improvement in the external account, evidenced by an increase in the SBP’s foreign exchange reserves despite substantial debt repayments.
The Monetary Policy Committee (MPC) justified the rate reduction by emphasising the room for easing monetary policy while maintaining control over inflation. The MPC believes that despite this reduction, the policy stance remains sufficiently stringent to steer inflation towards the medium-term target of 5–7 per cent.
This policy adjustment comes after Pakistan’s recent agreement with the International Monetary Fund (IMF) and the announcement of the federal budget.
Market sentiment, as reported by Arif Habib Limited (AHL), anticipated the rate cut, with a poll indicating that 55.7 per cent of respondents expected a reduction. AHL’s report predicted the rate would drop to 19.5 per cent, a level not seen since March 2023.
Additionally, Topline Securities also forecasted a similar reduction, attributing it to receding inflationary pressures.
The decision follows key events including the entry into a new $7 billion Extended Fund Facility (EFF) programme with the IMF and the latest federal budget.
These developments, along with recent improvements in macroeconomic indicators, have influenced the central bank’s move to lower the policy rate.
