SBP Cuts Key Policy Rate by 250 Basis Points as Inflation Eases
By Business Desk | November 4, 2024
The State Bank of Pakistan (SBP) has lowered its key policy rate by 250 basis points to 15%, marking the fourth consecutive cut as inflation remains in single digits through October.
Analysts and economists had widely anticipated this move, expecting the central bank to take further action to support Pakistan’s recovering economy as inflation subsides. Current inflation sits at an average of 8.7% for the financial year beginning in July, according to the statistics bureau, while the International Monetary Fund (IMF) projects an annual average of 9.5%.
Since June, the SBP has reduced the benchmark rate from an all-time high of 22% to 17.5%, including a 200-basis-point cut in September. Last week, most respondents in a Reuters poll predicted a 200-basis-point reduction, as inflation has dropped sharply from its peak of nearly 40% in May 2023, with rate cuts seen as essential to fostering economic growth.
Pakistan’s economic activity has stabilized after nearing a default last summer, saved by an IMF bailout at the last minute. In September, the IMF approved a $7 billion facility, supporting Pakistan’s economic stability with consistent policy measures under the 2023-24 standby arrangement.
October inflation was reported at 7.2%, slightly above the government’s target of 6-7%. The finance ministry forecasts further cooling, expecting inflation to reach 5.5-6.5% in November. However, some analysts warn that inflation may rise again in 2025 due to increases in electricity and gas prices, along with new taxes on retail, wholesale, and agriculture sectors expected to take effect in January 2025.
The IMF’s latest report projects Pakistan’s GDP growth to reach 3.2% by the fiscal year ending June 2025, up from 2.4% in fiscal 2024.
