The State Bank of Pakistan has announced another cut in the interest rate, bringing it down to 13%. This is the fifth consecutive reduction in the policy rate. The decision was made during a meeting of the Monetary Policy Committee (MPC). The committee highlighted that inflation has eased, but risks such as higher global commodity prices and additional measures to address revenue gaps remain.
Prime Minister Shehbaz Sharif welcomed the 2% reduction in the interest rate. He called it a positive step for the economy. The move, he said, would enhance investor confidence and attract more investment into the country.
According to the MPC, the latest policy rate cut reflects lower inflation in recent months. Headline inflation fell to 4.9% year-on-year in November 2024, mainly due to reduced food prices and the fading impact of last year’s gas price hike. However, core inflation stayed steady at 9.7%. The committee acknowledged that consumer and business inflation expectations remain unpredictable.
The MPC noted that inflation may remain unstable before eventually falling within the target range of 5-7%. Economic growth prospects have improved, as indicated by rising industrial activity and better agricultural performance. Preliminary data, including satellite images, suggests higher-than-expected cotton production and increased wheat cultivation.
Pakistan’s current account showed a surplus for the third month in a row as of October 2024. Exports rose by 8.7%, driven by high-value textiles, rice, and petroleum products. Despite this, the revenue shortfall has widened. The Federal Board of Revenue (FBR) reported a 23% year-on-year increase in tax collection during July-November FY25, but this falls short of the annual target.
The State Bank’s reserves grew to $12 billion due to favorable global commodity prices, which also kept the import bill under control. Further payments of $5 billion are expected by the end of FY25, with reserves projected to reach $13 billion by June 2025.
Jamil Ahmed, Governor of the State Bank, noted that $10.4 billion in payments were made by mid-December 2024. Some loans were rolled over, easing external financial pressures. He stressed that cautious monetary policy adjustments are balancing inflation control and economic growth.
This policy decision follows last month’s 250 basis points cut, which lowered the interest rate to 15%. The MPC remains optimistic about economic recovery, supported by favorable conditions and steady progress in industrial and agricultural sectors.
