On Monday, the State Bank of Pakistan (SBP) announced a decision to cut the interest rate by 100 basis points, lowering it from 20.5 per cent to 19.5pc. This decision was made during the central bank’s Monetary Policy Committee (MPC) meeting, which reviewed the current economic developments in the country.
SBP Governor Jameel Ahmed highlighted that the significant decline in inflation, which dropped from a record high of 38pc in May to 12.6pc in June, played a crucial role in the committee’s decision.
“The committee observed that the June 2024 inflation was slightly better than anticipated,” the MPC statement noted. It also assessed that the inflationary impact of the Fiscal Year 2025 budgetary measures was broadly in line with earlier expectations.
Moreover, the MPC acknowledged the improvement in the external account, reflected in the increase in SBP’s foreign exchange reserves despite substantial repayments of debt and other obligations.
Given these positive indicators, the committee determined there was room to reduce the policy rate further in a calibrated manner. The aim is to support economic activity while maintaining control over inflationary pressures.
Market participants had widely anticipated a rate cut following June’s inflation rate of 12.6pc, significantly lower than the previous interest rate of 20.5pc. However, there was some debate regarding the extent of the reduction.
With this rate cut, the SBP aims to strike a balance between stimulating economic growth and ensuring inflation remains manageable, reflecting a cautious optimism about Pakistan’s economic outlook.