The State Bank of Pakistan (SBP) announced on Monday a 100-basis-point (bps) reduction in its key policy rate, lowering it from 13% to 12%. The decision follows growing demands for a substantial rate cut amid an improving economic outlook.
The central bank has now slashed the policy rate by a total of 1,000bps in six intervals since June 2024, bringing it down from 22%.
During a press conference, SBP Governor Jameel Ahmed stated that the Monetary Policy Committee (MPC) reached this decision after assessing inflation trends and other key economic factors. He noted an encouraging increase in remittances and projected further declines in inflation for January, though core inflation remains elevated. “We adopted a cautious approach given the circumstances,” Ahmed remarked, adding that export performance and the current account trends are also promising.
The SBP remains optimistic about achieving $13 billion in foreign exchange reserves by June 2025, despite challenges such as low financial inflows and high debt repayments.
In its post-meeting statement, the MPC highlighted that inflation dropped to 4.1% year-on-year in December due to moderated domestic demand and favorable supply conditions. However, it warned that core inflation continues to pose risks.
The committee also cited slower-than-expected GDP growth, current account surpluses in December, and volatile global oil prices as key factors influencing its cautious monetary stance.
Additionally, the government’s recent auction of treasury bills reflected expectations of further rate cuts, as yields on 12-month T-bills dropped by 41bps to 11.38%.
Experts had widely anticipated the SBP’s decision to reduce rates, given the positive economic indicators and ongoing efforts to stabilize the economy.
