Reduction in its key policy rate, from 15% to 13%, effective from December 17, 2024
The State Bank of Pakistan (SBP) on Monday announced a 200% (bps) cut in its key policy rate from 15% to 13% effective December 17, 2024.
This comes after headline inflation fell to 4.9 percent in November from a year earlier, in line with the central bank’s expectations.
The decision was taken at a meeting of the Monetary Policy Committee (MPC), which said that the fall in food inflation and the rise in gas prices last year had contributed significantly to the fall in inflation.
However, core inflation edged up slightly at 9.7 percent, with consumer and business inflation expectations unchanged.
“The latest policy easing is to ensure that inflation remains at a manageable level while boosting growth,” the MPC said in a statement.
The MPC also noted positive economic signals, including an increase in high-frequency indicators of economic activity.
“We expect GDP growth to fall to the upper half of the forecast of 2.5%-3.5% for FY25,” he said, pointing to improved performance in the agricultural and industrial sectors.
The committee also highlighted key developments since its last meeting, including the third consecutive month of account surplus that helped foreign exchange reserves rise to about $12 billion.
In addition, private debt increased, reflecting the easing of financial conditions.
Despite these positive signs, challenges remain, especially in the financial sector. Tax revenues do not meet the target and significant efforts will be required to meet the annual revenue target.
“While the growth of broad money has slowed down, lending to the private sector has accelerated, contributing to the ongoing economic recovery,” MPC said.
The SBP expects inflation to be 11.5%-13.5% lower than its previous 25-year forecast, but the risk of core inflation and changes in global commodity prices can weigh on the outlook.
