SBP cuts interest rate by 150bps to 20.5pc

The State Bank of Pakistan (SBP) announced on Monday a reduction in the key interest rate by 150 basis points, bringing it down to 20.5 per cent. This decision comes ahead of the annual budget and follows recent data showing a significant slowdown in inflation to a 30-month low of 11.8pc in May.

In a statement, the SBP’s Monetary Policy Committee (MPC) detailed its review of current economic conditions, noting a “better than anticipated” decline in inflation last month. The committee observed that underlying inflationary pressures are subsiding, thanks to a tight monetary policy stance and fiscal consolidation.

However, the MPC also highlighted potential risks to the near-term inflation outlook, particularly related to forthcoming budgetary measures and uncertainties about future energy price adjustments.

The committee reported that real GDP growth remained moderate at 2.4pc, with a subdued recovery in industry and services partially offsetting strong growth in agriculture. Additionally, a reduction in the current account deficit has helped bolster foreign exchange reserves to around $9 billion, despite significant debt repayments and weak official inflows.

The SBP emphasised that the real interest rate remains significantly positive, which is crucial for guiding inflation towards the medium-term target of 5-7pc.

A recent survey by Topline Securities indicated that 90pc of participants expected a rate cut, though opinions varied on the extent, with estimates ranging from 100 to 300 basis points. Experts noted that while there was room for a significant rate reduction due to the substantial gap between the headline consumer inflation rate of 11.8pc and the previous policy rate of 22pc, the SBP would proceed cautiously.

Exit mobile version