The State Bank of Pakistan (SBP)’s Monetary Policy Committee on Monday slashed the key policy rate by 200 basis points, reducing it from 15 to 13%, the fifth consecutive cut since this government came into power after the Feb. 8 general elections.
In its meeting last month, the Monetary Policy Committee cut the key interest rate by 250 basis points to 15%, citing higher-than-anticipated inflation. It followed a 200 basis points’ cut in September; 100 in July; and 150 in June, bringing the interest rate from its peak of 22% to 13% now, a cut of 900 basis points over six months.
Ahead of this month’s meeting, the Pakistan Bureau of Statistics reported November’s consumer price index at 4.9%. “This deceleration was mainly driven by continued decline in food inflation as well as the phasing out of the impact of the hike in gas tariffs in November 2023,” read a statement issued by the central bank. It said core inflation, at 9.7%, was proving to be sticky, while inflation expectations of consumers and businesses remained volatile.
The committee also noted that the current account remained in surplus for the third consecutive month in October 2024, helping increase the foreign exchange reserves to around $12 billion. “Second, global commodity prices remained generally favorable, with positive spillovers on domestic inflation and the import bill. Third, credit to the private sector recorded a noticeable increase, broadly reflecting the impact of ease in financial conditions and banks’ efforts to meet the advances-to-deposit ratio thresholds. Lastly, the shortfall in tax revenues from the target has widened,” it added.
The State Bank’s statement said under the prevailing developments, the Monetary Policy Committee considered the real policy rate appropriately positive to stabilize inflation within the target range of 5-7%. It said it expected inflation to average “substantially below” its earlier forecast range of 11.5% to 13.5% in 2025. However, it cautioned, this outlook was susceptible to risks, including measures to meet government revenue shortfalls as well as food inflation and increased global commodity prices.
“Inflation may remain volatile in the near term before stabilizing in the target range,” it stressed.
In its statement, the bank noted that Pakistan would require “considerable efforts” and additional measures to meet the annual revenue target, a key requirement of the $7 billion facility inked with the International Monetary Fund (IMF) in September.