The State Bank of Pakistan’s Monetary Policy Committee (MPC) has decided to lower its key policy rate by 200 basis points (bps) to 17.5% from 19.5%.
The MPC announced on Thursday that it would respond to widespread calls for substantial rate reductions to boost economic growth.
In a statement, the SBP noted that the MPC considered “various factors impacting the inflation outlook” before making this decision. Economic stakeholders have closely monitored the interest rate adjustment and expressed various expectations. Before the announcement, the anticipation in financial circles varied, with most experts predicting a moderate reduction while industry and trade sectors advocated for more aggressive cuts.
Until now, the interest rate stood at 19.5%, with August’s inflation recorded at 9.6%, resulting in a real interest rate of approximately 10%. This substantial difference has fueled demands for more significant rate reductions to alleviate the financial burden on businesses and stimulate economic activity.
Read: SBP Likely to Cut Policy Rate in September Meeting
Financial analysts typically expected a cut of around 150 basis points, although some did not rule out the possibility of a 200bps decrease. On the other hand, leaders from various industries have been pushing for a dramatic reduction, suggesting a cut of as much as 500bps to catalyze economic growth and revitalize business operations affected by high borrowing costs.
The MPC sees the rate cut as a strategic move to align the policy rate more closely with the current economic realities and inflation trends, potentially making capital more accessible and less expensive for businesses. This decision is pivotal in setting the tone for economic recovery and stability, as it impacts borrowing costs, consumer spending, and overall economic momentum.
