SBP cuts policy rate by 150bps to 20.5pc in line with expectations
Business
The interest rate remained unchanged in the previous seven sessions
KARACHI (Dunya News) – The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday cut the policy rate by 150 bps to 20.5 percent, effective from June 11, 2024, amid moderate GDP growth and declining inflation.
This is the first change in the interest rate in the last one year as it was was kept unchanged in seven previous sessions by the central bank.
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The MPC noted that while the significant decline in inflation since February was broadly in line with expectations, the May outturn was better than anticipated earlier.
The Committee assessed that underlying inflationary pressures were also subsiding amidst tight monetary policy stance, supported by fiscal consolidation.
“This is reflected by continued moderation in core inflation and ease in inflation expectations of both consumers and businesses in the latest surveys,” read the official statement.
At the same time, the MPC viewed some upside risks to the near-term inflation outlook associated with the upcoming budgetary measures and uncertainty regarding future energy price adjustments.
Notwithstanding these risks and decision to cut the policy rate, the Committee noted that the cumulative impact of the earlier monetary tightening is expected to keep inflationary pressures in check.
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The committed noted various key developments since its last meeting.
“First, real GDP growth remained moderate at 2.4 percent in FY24 as per provisional data, with subdued recovery in industry and services partially offsetting the strong growth in agriculture.
“Second, reduction in the current account deficit has helped improve the FX reserves to around US$9 billion despite large debt repayments and weak official inflows. The government has also approached the IMF for an Extended Fund Facility program, which is likely to unlock financial inflows that will help in further build-up of FX buffers,” reads the press release.
The international oil prices have also declined, whereas non-oil commodity prices have continued to inch up.
Based on these developments, the Committee, on balance, viewed that it is now an appropriate time to reduce the policy rate.
“The Committee noted that the real interest rate still remains significantly positive, which is important to continue guiding inflation to the medium-term target of 5 – 7 percent.”
