State Bank of Pakistan cuts policy rate to 20.5%

The State Bank of Pakistan (SBP) has reduced its key policy rate by 150 basis points to 20.5 per cent, marking the first rate cut in nearly four years.

The move, announced on Monday, aligns with market analysts’ expectations and comes just ahead of the country’s annual budget for 2024-25.

Since June 2023, the central bank had maintained borrowing costs at a record 22 per cent. The Monetary Policy Committee (MPC) highlighted that while the significant decline in inflation since February was generally anticipated, the inflation figures for May were better than expected.

The MPC also observed that underlying inflationary pressures are easing due to the tight monetary policy stance and fiscal consolidation efforts.

This trend is evident from the continued moderation in core inflation and the improvement in inflation expectations among both consumers and businesses, according to recent surveys.

Despite acknowledging some upside risks to the near-term inflation outlook, particularly from upcoming budgetary measures and uncertainties regarding future energy prices, the MPC remains confident that the cumulative impact of previous monetary tightening will help keep inflationary pressures in check.