SBP reduces policy rate by 1% to 19.5%

KARACHI (92 News) - The State Bank of Pakistan’s Monetary Policy Committee (MPC) on Monday decided to cut the policy rate by 100 basis points (1%) to 19.5 percent from July 30, 2024.

According to a press release, the committee observed that the June 2024 inflation was slightly better than anticipated.  It also assessed that the inflationary impact of the FY25 budgetary measures was broadly in line with earlier expectations. The external account has continued to improve, as reflected by the build-up in SBP’s FX reserves despite substantial repayments of debt and other obligations.

Considering these developments – along with significantly positive real interest rate – the committee viewed that there was a room to further reduce the policy rate in a calibrated manner to support economic activity, while keeping inflationary pressures in check.

The committee noted the following key developments since its last meeting.

First, the current account deficit narrowed sharply in FY24 and SBP’s FX reserves improved significantly from $4.4 billion at end-June 2023 to above US$9.0 billion.

Second, the country reached a staff level agreement with the IMF for a 37-month EFF program of about US$7.0 billion.

Third, sentiment surveys conducted in July showed a worsening in inflation expectations and confidence of both consumers and businesses.

Fourth, international oil prices have remained volatile in recent weeks, whereas prices of metals and food items have eased.

Lastly, with the ease in inflationary pressures and labour market conditions, central banks in advanced economies have also started to cut their policy rates.

Taking stock of these developments, the committee assessed that, despite today’s decision, the monetary policy stance remains adequately tight to guide inflation towards the medium-term target of 5-7 percent. This assessment is also contingent on achieving the targeted fiscal consolidation, timely realization of planned external inflows and addressing underlying weaknesses in the economy through structural reforms.