On Monday, the State Bank of Pakistan (SBP) reduced its key policy rate by 200 basis points, from 15% to 13%, effective December 17, 2024.
This rate cut follows a year-on-year decrease in headline inflation to 4.9 per cent in November, aligning with the central bank’s projections.
The Monetary Policy Committee (MPC) made this decision, citing reduced food inflation and lesser impacts from last year’s gas tariff hikes as major factors in the slowdown.
Despite these trends, core inflation remains high at 9.7 per cent, with consumer and business inflation expectations still fluctuating.
“The recent policy rate cut supports growth while helping to keep inflation manageable,” the MPC stated.
The committee also observed positive economic trends, including a rise in high-frequency indicators of economic activity, expecting FY25’s GDP growth to be between 2.5% and 3.5%, buoyed by improvements in agriculture and industry.
The committee noted that the current account has posted a surplus for three consecutive months, strengthening foreign exchange reserves to around $12 billion.
Private sector credit has also increased, reflecting more relaxed financial conditions.
However, fiscal challenges persist, with tax revenues falling below expectations, necessitating significant efforts to achieve annual targets.
“While broad money growth has slowed, accelerated credit to the private sector has bolstered the economic recovery,” noted the MPC.
The SBP anticipates inflation will remain below the previously forecasted range of 11.5%-13.5% for FY25, though core inflation risks and global commodity prices could alter this outlook.
