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SBP Cuts Key Policy Rate by 200 Basis Points Amid Growing Economic Optimism
In a significant move, the State Bank of Pakistan slashes its policy rate by 200bps to 17.5%, aiming to curb inflation and stimulate economic growth. What does this mean for businesses and consumers?
ND
by News Desk
2024-09-12
SBP Cuts Key Policy Rate by 200 Basis Points Amid Growing Economic Optimism

The State Bank of Pakistan (SBP) on Thursday announced a significant reduction in its key policy rate, cutting it by 200 basis points (bps) to 17.5% from the previous 19.5%. The decision came in response to widespread demands for a substantial rate cut amid the country’s ongoing efforts to stabilize the economy.

According to the SBP’s statement, the Monetary Policy Committee (MPC) took into consideration a range of factors that are likely to impact the inflation outlook in the near term. Despite the rate cut, the committee noted that the real interest rate would remain sufficiently positive to bring inflation down to the SBP’s medium-term target of 5 to 7%, while also supporting macroeconomic stability.

The MPC highlighted the sharp decline in global oil prices and Pakistan's foreign reserves standing at $9.5 billion as of September 6, 2024, despite the challenges of weak inflows and continuous debt repayments. Another positive indicator cited was the noticeable drop in secondary market yields for government securities since the previous MPC meeting.

Market watchers had been keenly anticipating the SBP's decision, with the majority of financial experts predicting a reduction in the policy rate by 150bps, though some advocated for a cut as large as 500bps. Inflation was recorded at 9.6% in August, leading to calls for a major reduction to narrow the 10% gap between the inflation rate and the policy rate.

Although the reduction aligns with expectations, industry leaders continue to advocate for further cuts to accelerate economic growth. The government remains hopeful that this decision, coupled with the improved inflation outlook, will encourage private sector investment and boost job creation, especially for the country’s youth.

Pakistan’s projected growth rate for FY25 has been set at 3.5%, a marked improvement from the previous fiscal year’s growth of 2.4%. With this rate cut, the SBP is aiming to lower the cost of borrowing, potentially spurring economic activity and attracting investment in key sectors.

The SBP’s next steps will be closely watched by the market, as inflation and growth trends continue to evolve in the coming months.
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SBP

PakistanFinance

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