KARACHI: On Monday, the State Bank of Pakistan (SBP) announced a reduction in the key interest rate by 100 basis points, bringing it down to 19.5% from the previous rate of 20.5%.
SBP Governor Jameel Ahmad addressed the media, explaining the decision. He mentioned that the central bank’s Monetary Policy Committee (MPC) had met earlier in the day and opted for the rate cut due to a decline in inflation over the past few months.
“We have noted that the inflation is on a declining trend,” Governor Ahmad stated during the press conference.
In a separate statement, the MPC observed that June 2024’s inflation figures were slightly better than anticipated. “The Committee also assessed that the inflationary impact of the FY25 budgetary measures was broadly in line with earlier expectations,” the statement read.
The external account has shown signs of improvement as well, highlighted by the buildup in SBP’s foreign exchange reserves, despite significant debt repayments and other obligations.
“Considering these developments – along with a significantly positive real interest rate – the Committee viewed that there was room to further reduce the policy rate in a calibrated manner to support economic activity while keeping inflationary pressures in check,” the SBP’s statement added.
The MPC believes that despite the latest rate cut, the monetary policy stance remains “adequately tight to guide inflation towards the medium-term target of 5–7%.”
In June 2024, the inflation rate stood at 12.6%, while the current account deficit was recorded at $410 million. This reduction follows a previous cut in June this year when the SBP slashed the interest rate by 150 basis points to 20.5%.
This move aims to strike a balance between stimulating economic activity and maintaining control over inflation, reflecting the central bank’s cautious yet proactive approach to monetary policy.
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