State Bank cuts policy rate to 17.50% from 19.50%.
The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) which met Thursday decided to reduce the policy rate by 200 basic points, reported The Asian Mirror.
As of September 12, 2024, the State Bank of Pakistan’s (SBP) policy rate was 17.5% down from 19.50%.
This is the result of a 200-basis-point cut, which is the third consecutive reduction since June 2024.
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“The Monetary Policy Committee (MPC) decided to reduce the policy rate by 200 bps to 17.5 percent in its meeting today,” a statement released by the SBP read, adding that it took into “account various factors impacting the inflation outlook”.
According to the statement, the MPC “assessed the real interest rate to still be adequately positive to bring inflation down to the medium-term target” of 5 to 7 per cent and help ensure macroeconomic stability.
Regarding the reasons behind its decision, the MPC noted global oil prices had fallen sharply and the SBP’s foreign reserves stood at $9.5 billion on Sept 6 — despite weak inflows and continued debt repayments.
“Third, secondary market yields of government securities have declined noticeably since the last MPC meeting,” it said, adding that “inflation expectations and confidence of businesses have improved in the latest pulse surveys, while those of consumers have worsened slightly”.
The interest rate decisions are being keenly watched by economic stakeholders, with expectations ranging from cautious optimism to demands for significant reductions.
Currently, the interest rate stands at 19.5pc, while inflation in August was recorded at 9.6pc, resulting in a positive real interest rate of 10pc.
This significant gap had led to calls for a substantial rate cut.
Regarding the inflation outlook, the Committee said that the decline in August “reflected the impact of contained demand, reinforced by improved supplies of major food items”.
Financial experts generally anticipated a reduction of 150 basis points, with some forecasting a cut of up to 200bps. However, industry leaders advocated for a more dramatic reduction of 500bps to spur economic growth.
Earlier, in a poll conducted by Topline Securities, it was noted that 98pc of the participants believed that SBP will announce a rate cut.
“Out of 98pc, 85pc are expecting more than 150bps cut while 15pc are expecting cut between 50-100bps,” it said, adding that the firm was also “of the similar view that SBP will announce rate cut to the extent of 150bps compared to cut of 100bps in last monetary policy meeting”.
