SBP reduces policy rate by 100 bps for sixth consecutive time

KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has reduced the policy rate by 100 bps, with the reduction, effective from January 28, 2025.

The policy rate was brought down to 12% due to the downward trend in inflation, reaching 4.1 percent year-on-year in December, the central bank said in a press release.

This is the sixth successive cut in the key interest rate since June 2024 when it stood at 22%. The MPC assessed that the impact will continue to unfold and further support economic activity.

“This trend is driven by moderate domestic demand conditions and supportive supply-side dynamics, amidst favorable base effect,” the press release read.

The Monetary Policy Committee also noted that core inflation, while continuing to ease, is still at an elevated level. The high-frequency indicators continued to show a gradual improvement in economic activity.

The Committee noted the following key developments since its last meeting;

• Real GDP growth in Q1-FY25 turned out slightly lower than the MPC’s earlier expectations.
• The current account remained in surplus in December 2024, though the SBP’s FX reserves declined amidst low financial inflows and high debt repayments.
• Despite a substantial increase in December, tax revenues remained below target in H1-FY25.
• Global oil prices have exhibited heightened volatility over the past few weeks.
• The global economic policy environment has become more uncertain, prompting central banks to adopt a cautious approach.

Considering these developments and evolving risks, the Committee viewed that “a cautious monetary
policy stance” is needed to ensure price stability, which is essential for sustainable economic growth.

In this regard, the MPC assessed that the real policy rate needs to remain adequately positive on a forward-looking basis to stabilize inflation in the target range of 5 – 7 percent.