The State Bank of Pakistan (SBP) has unveiled the schedule for its Monetary Policy Committee (MPC) meetings for the first six months of 2025, with four meetings set to decide on retaining or reducing the basis policy rate.
The first MPC meeting is scheduled for Jan. 27, followed by a second on March 10, a third on May 5, and a fourth on June 16, according to the schedule issued by the central bank. Economists and analysts are closely watching the Jan. 27 meeting, as the inflation rate for December stood at 4.1% compared to 4.9% a month earlier. Year-on-year, inflation has slid dramatically from the 29.7% recorded in December 2023.
Inflation started to decline in June 2023 after peaking at a back-breaking 38% in May 2023. However, it remained fairly high through May 2024, when it posted its first significant reduction, climbing down from 17% in April 2024 to 11.8% a month later. Since then, inflation has continued to decline thanks in large part to a high base effect and stability in commodity supplies. The higher-than-anticipated inflationary declines have also enabled the SBP to reduce the interest rate by a dramatic 900 basis points in just six months.
Amidst rampant inflation, the central bank had raised the interest rate to 22% in June 2023. This value was retained in seven consecutive meetings of the MPC, with the first reduction of 150 basis points coming in June 2024. The persistent declines to inflation enabled the SBP to further reduce the interest rate to 19.5% in July 2024, followed by 17.5% in September, 15% in November, and then 13% in December. In statements issued after the MPC meetings, the central bank has stressed on proceeding with caution, emphasizing that inflationary pressures persist.
Most economists, however, believe the present difference between the inflation and interest rates provides the central bank sufficient cushion for a further reduction in the next MPC meeting—set for Jan. 27. This is seen as key to facilitating industries, which continue to lag and hamper the country’s economic growth.
Key to the extent to which a future reduction might occur, though, is the country’s import bill. In the past, any decline in interest rates had coincided with a surge in imports, impacting the country’s current account and balance of payments. This was evident in December, when imports rose by 17.5% to $5.285 billion, a 27-month high. This widened the trade deficit by 34.8% to $2.44 billion. Analysts have warned that a current account deficit or significant narrowing of surplus in December might push the SBP to proceed cautiously to avoid “overheating” of the economy.
In a recent visit to the Pakistan Stock Exchange, Prime Minister Shehbaz Sharif noted that his government desires a further interest rate cut to promote business activity.