Pakistan Central Bank Announces 200 Basis Points Rate Cut To 17.5%
Inflation in August was at 9.6%, resulting in a positive real interest rate of 10%.
Pakistan’s Central bank on Thursday cut its key policy rate by 200 basis points to 17.5% from 19.5% bowing to demands for a major rate cut.
The State Bank in a statement said that the Monetary Policy Committee decided to reduce the policy rate by 200 basis points to 17.5% in its meeting on Thursday.
“Various factors impacting the inflation outlook were taken into consideration while reaching this decision,” it said.
Inflation in August was at 9.6%, resulting in a positive real interest rate of 10%.
Financial experts generally anticipated a reduction of 150 bps with some forecasting a cut of up to 200 bps. However, industry leaders advocated for a deep 500 bps cut to spur economic growth.
The Monetary Policy Committee assessed the real interest rate to still be adequately positive to bring inflation down to the medium-term target” of 5% to 7% and help ensure macroeconomic stability, the statement read.
The MPC said global oil prices had fallen sharply and the SBP’s foreign reserves stood at $9.5 billion on Sept. 6 — despite weak inflows and continued debt repayments.
“Third, secondary market yields of government securities have declined noticeably since the last MPC meeting,” it said, adding that “inflation expectations and confidence of businesses have improved in the latest pulse surveys, while those of consumers have worsened slightly”.
Throughout the financial year financial year 2024, the SBP maintained the interest rate at a high of 22%. In recent months, it introduced two consecutive cuts — 150bps initially, followed by a 100bps reduction — bringing the total decrease to 2.5 percentage points.
The government which recently secured a $7 billion loan from the International Monetary Fund has insisted it is taking measures to ensure this would be the last time Pakistan went to the IMF, provided all IMF conditions are met in time.
The projected growth rate for the current fiscal year is 3.5%, up from 2.4% in financial year 2024. Experts believe that reducing the cost of borrowing will encourage private sector investment, stimulate economic activity and create much-needed jobs, particularly for young Pakistanis seeking opportunities abroad.
