SBP lowers policy rate by 2.5 percent as inflation eases

KARACHI: The Monetary Policy Committee (MPC) of the State Bank of Pakistan on Monday decided to cut the policy rate by 250 basis points to 15 percent, effective from November 5, 2024.

Fixing the policy rate at 15% from the previous 17.5%, the committee noted that inflation had eased faster than expected and had moved closer to its medium-term target range in October.

It surmised that the tight monetary policy stance was playing an important role in maintaining the downward trend in inflation. Moreover, the sharp fall in food inflation, favorable global oil prices and the absence of expected adjustments in gas tariffs and PDL rates have accelerated the pace of disinflation in recent months.

Taking into account the inherent risks associated with these factors, the MPC estimated that near-term inflation could remain volatile before stabilizing within the target range.

The MPC noted various developments since its last meeting that may have implications for the macroeconomic outlook.

It highlighted that the IMF Board has approved Pakistan’s new EFF programme, which has reduced uncertainty and improved the prospects of receiving planned external funds.

It said the October survey showed an improvement in confidence and a decline in inflation expectations of both consumers and businesses.

Third, secondary market yields on government securities and KIBOR have declined substantially. Fourth, tax collection during the first four months of FY25 fell short of the target,” read an official State Bank statement.

Finally, while global oil prices have shown significant volatility amid heightened geopolitical tensions, prices for metals and agricultural products have risen significantly.

Considering these developments, the Committee considered the current monetary policy stance appropriate to achieve the objective of price stability on a sustainable basis by keeping inflation within the target range of 5-7 percent.

“It will also support macroeconomic stability and help achieve economic growth on a sustainable basis,” it said.