The State Bank of Pakistan (SBP) Monetary Policy Committee brought the key policy rate 200 basis points lower, to 13%, effective 17 December 2024. This is the fifth successive decrease since June 2024, when it stood at 22%.
According to the MPC statement, headline inflation fell sharply to 4.9% year-on-year in November 2024. The decline was mainly due to easing food inflation and the fading effect of gas tariff hikes in the previous year. The Committee noted that core inflation remains sticky at 9.7%, with consumer and business inflation expectations showing volatility.
The SBP noted that the economy was gaining pace with support from high-frequency indicators and the external sector also became stable. The account stood in surplus for the third consecutive month in October 2024, adding $12 billion to foreign exchange reserves. A better global commodity price situation also eased some of the pressures on inflation and import bills.
The MPC considered that the policy rate cuts since June 2024 were slowly paying off and supporting growth while containing inflationary tendencies. The Committee underlined that the real policy is positive and thus required to stabilize inflation at a level of 5-7%.
Market analysts had widely forecasted this decision. Experts from the brokerage firms, including Topline Securities and Arif Habib Limited, had predicted a 200-basis-point cut in view of slowing trends in inflation. Economic advisor Khurram Shehzad also sounded optimistic, saying reduced borrowing costs would help businesses and improve fiscal stability.
The easing of inflation and brightening growth prospects have helped the SBP to stick to a measured approach in monetary policy that will be supportive of economic growth without undermining price stability.
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