ISLAMABAD: The State Bank of Pakistan (SBP) has announced a reduction in the key interest rate by 100 basis points (bps), lowering it to 19.5 percent from the previous rate of 20.5 percent.
The Monetary Policy Committee (MPC) of the central bank announced that it decided to cut the policy rate by 100bps to 19.5%, effective from July 30, 2024.
Addressing a press conference, SBP Governor Jameel Ahmad stated that the central bank’s MPC had met earlier today to review current economic developments, emphasizing the significant role of declining inflationary pressure in their decision.
The MPC statement also mentioned that the committee noticed June 2024 inflation was a little better than expected. It also found that the effects of the fiscal year 2025 budget on inflation were mostly what they had predicted.
It also noted that the external account has continued to improve, as reflected in SBP’s foreign exchange reserves, “despite substantial repayments of debt and other obligations.”
Due to these reasons, the committee “believed that there was room to further lower the policy rate in a careful way to support economic activity while keeping inflation pressures under control.”
On positive developments, the statement said that the current account deficit had narrowed in the fiscal year 2024 and SBP’s FX reserves had “improved significantly from $4.4 billion at end-June 2023 to above $9 billion”.
Furthermore, it highlighted that the country had reached a staff level agreement with the International Monetary Fund (IMF) for a 3-year extended fund facility programme of $7bn.
About the inflation outlook, the statement said that overall inflation went up to 12.6% compared to last year in June 2024, up from 11.8% in May, caused by higher electricity prices and price increases related to Eid.
However, it noted that core inflation has remained around 14% for the past two months and pointed out that the effects of the new budget on inflation are “mostly what was expected.”
Previously, the headline inflation for June was recorded at 12.6% year-on-year, according to data from the Pakistan Bureau of Statistics (PBS).
