KARACHI: The Monetary Policy Committee (MPC) cut the key policy rate by 200 basis points (bps) to 13%, the State Bank of Pakistan (SBP) announced on Monday as inflation continues to ease.
Last month, the central bank cut its key interest rate by 250bps to 15%, at least 0.5% above market expectations amid falling inflation.
The Consumer Price Index (CPI) for November closed at 4.9 percent – well below the general market consensus.
“The decline was mainly driven by the continued decline in food inflation as well as the phase-out of the impact of the gas rate hike in November 2023,” the MPC noted, adding that core inflation The rate is pegged at 9.7%. Sticky, while consumer and business inflation expectations remain volatile.
Pakistan’s latest move makes this year’s cuts the most aggressive among emerging-market central banks in the current easing cycle, with the exception of foreign countries such as Argentina.
The committee, which met today, also noted that the current account remained in surplus for the third consecutive month in October 2024, which helped boost foreign exchange reserves to about $12 billion.
“Secondly, global commodity prices remained generally favorable, with positive effects on domestic inflation and the import bill. Thirdly, a significant increase in credit to the private sector was recorded, reflecting the effects of easing financial conditions and advances by banks. reflects efforts to meet the -deposit ratio (ADR) limit, in the end, the reduction in tax revenue from the target.” added
Considering the above developments, the MPC believes that the real policy rate remains sufficiently positive to stabilize inflation in the target range of 5 to 7 percent, the statement said.
The bank noted that it expects inflation to remain “significantly below” its earlier forecast range of 11.5% to 13.5% in 2025.
It added that the inflation outlook is sensitive to risks, including measures to offset government revenue shortfalls, as well as food inflation and rising global commodity prices.
“Inflation may remain volatile in the near term before stabilizing within the target range,” the bank said.
Pakistan is on a difficult economic recovery path and has been boosted by a $7 billion facility from the International Monetary Fund (IMF) in September.
The bank noted that Pakistan would need “substantial efforts and additional measures” to meet its annual revenue target, a key focus of the IMF agreement.
All 12 analysts polled by Reuters had expected a 200bps cut, after inflation fell sharply in November to 4.9 percent, largely due to a higher base from a year ago, which the government presented. It comes down from the bullish and is significantly lower than the multi-decade highs. 40 percent in May last year.
Monday’s move follows record cuts of 150bps in June, 100bps in July, 200bps in September, and 250bps in November, taking the rate below a peak of 22%, set in June 2023 and No change has been made for this. A year
This takes the total cuts since June to 900bps.