KARACHI: The State Bank of Pakistan (SBP) on Monday announced a reduction in the key policy rate by 100 basis points (bps) to 12 percent from 13 percent in line with the expectations of the business community.
The SBP Governor Jameel Ahmed in a press conference at a press conference said that the Monetary Policy Committee (MPC), in its meeting has decided on the interest rate cut keeping in view the inflation outlook.
Furthermore, he noted a positive trend in foreign remittances. He also added that inflation numbers were also bound to come down in January, however, he warned that core inflation still remained high.
“Keeping these things in mind, we adopted a cautious approach,” he said, adding that the trend in remittances was “good” and so were export numbers, keeping the current account in view.
The governor stated that the central bank remains confident in achieving its target of $13 billion in foreign exchange (FX) reserves by the end of June.
This is the sixth successive cut in the key interest rate since June 2024 when it stood at 22%.
“The Committee noted that inflation continued to trend downward in line with expectations, reaching 4.1pc y/y [year-on-year] in December,” a statement released later by the SBP said.
“This trend is driven by moderate domestic demand conditions and supportive supply-side dynamics, amidst favourable base effect,” it highlighted, adding that inflation was “expected to come down further in January before inching up in the subsequent months”.
Furthermore, the Committee also stressed that core inflation remained elevated.
“At the same time, high-frequency indicators continued to show a gradual improvement in economic activity,” the statement added.
The MPC noted in its key developments that real GDP growth fell short of the Committee’s expectations.
“Second, the current account remained in surplus in December 2024, though the SBP’s FX reserves declined amidst low financial inflows and high debt repayments,” it said.
Thirdly, it noted that despite “a substantial increase in December, tax revenues remained below target”. “Fourth, global oil prices have exhibited heightened volatility over the past few weeks,” it noted.
Given these developments and evolving risks, the Committee emphasised the need for a cautious monetary policy stance to maintain price stability.
Meanwhile, the government lowered the cut-off yields on treasury bills (T-bills) during last week’s auction, reflecting an increased possibility of another interest rate adjustment.
T-bill rates were reduced by up to 41 basis points as the government met its auction target. The yield on the 12-month tenor dropped by 41 basis points to 11.38%, compared to a 49 basis point cut at the January 8 auction, bringing the total reduction for the month to 90 basis points.
