The State Bank of Pakistan (SBP) has reduced its policy rate by 250 basis points to 15%, effective November 5. The bank cites reduced inflation and a positive economic forecast as reasons for the reduction.
This decision follows a slowdown in inflation, which aligned closely with the central bank’s medium-term target in October.
The Monetary Policy Committee (MPC) reported decreased inflationary pressures, supported by stable food prices, favourable global oil conditions, and limited changes in domestic tariffs.
Despite ongoing inflation volatility, the MPC expects to stabilize within the 5–7% range shortly.
Further bolstering economic confidence, the SBP referenced the IMF’s approval of Pakistan’s Extended Fund Facility, encouraging external financial inflows.
Improved investor sentiment and lower government yields also played a crucial role in the committee’s rate decision.
The MPC observed robust growth in textiles, food, and automobiles. Additionally, better-than-anticipated output from the Kharif crop in the agricultural sector has reinforced economic optimism. The SBP now projects FY25 real GDP growth between 2.5% and 3.5%.
Externally, the current account achieved a surplus for the second consecutive month in September, driven by strong remittances and exports. Although imports rose, SBP’s foreign reserves were reported at $11.2 billion in late October, with expectations for further growth.
The SBP has adjusted its FY25 inflation forecast to below the prior range of 11.5%–13.5%, due to lower core inflation and enhanced domestic supply. However, potential challenges such as Middle East tensions and ad hoc fiscal adjustments could pose risks.
