KARACHI: The State Bank of Pakistan (SBP) on Monday announced to cut its policy rate by 250 basis points (bps) to 15 percent from 17.5 percent amid calls for a big rate drop.
The decision was taken in a Monetary Policy Committee (MPC) meeting of the central bank chaired by SBP Governor Jameel Ahmad.
“At its meeting today, the Monetary Policy Committee (MPC) decided to cut the policy rate by 250 basis points to 15 percent, effective from November 5, 2024. The Committee noted that inflation has declined faster than expected and has reached close to its medium-term target range in October,” a statement issued here read.
The MPC also assessed that the tight monetary policy stance play an important role in sustaining the downward trend in inflation.
“Moreover, a sharp decline in food inflation, favourable global oil prices and absence of expected adjustments in gas tariffs and PDL rates have accelerated the pace of disinflation in recent months. Taking into account the inherent risks associated with these factors, the MPC assessed that the near-term inflation may remain volatile before stabilizing within the target range,” it added.
In its meeting to fix the policy rate, the MPC noted with satisfaction that the International Monetary financial (IMF) Board had approved Pakistan’s new extended financial facility programme, reducing uncertainty and improving prospects for external flows.
“Second, the surveys conducted in October showed an improvement in confidence and a reduction in inflation expectations of both consumers and businesses. Third, the secondary market yields on government securities and KIBOR have declined substantially. Fourth, tax collection during the first four months of FY25 fell short of target. Lastly, while the global oil prices have exhibited significant volatility amidst escalating geopolitical tensions, prices of metals and agricultural products have increased notably,” the statement read.
GDP growth in FY25
The MPC added that the latest data showed a gradual pick-up in economic activity as the initial estimates of major Kharif crops turned out better than the its earlier expectations.
“Higher-than-targeted estimates of rice and sugarcane production have more than offset the estimated shortfall in maize and cotton output. Moreover, the pace of industrial activity is gaining further traction. In particular, textile, food, automobile and allied industries have recorded significant growth during July-August 2024, which is expected to gain further momentum in the coming months.”
According to the MPC, the assessment is supported by increasing imports of raw materials and machinery, improving business confidence, and easing financial conditions. Better prospects of commodity- producing sectors and easing inflationary pressures are also expected to support services sector.
“Overall, the MPC expects real GDP growth in FY25 to be better than its earlier assessment, while remaining in the range of 2.5 – 3.5 percent,” the MPC predicted.
