KARACHI: The State Bank of Pakistan (SBP) announced on Monday that it has reduced its key policy rate by 250 basis points (bps) to 15%, effective November 5. This move, reducing the rate from the previous 17.5%, comes in response to a decline in inflation and demands for easing borrowing costs to support economic growth.
The decision, made by the central bank’s Monetary Policy Committee (MPC), marks the fourth consecutive rate cut since June and signals confidence in the country’s improving inflation outlook. The MPC highlighted that inflation had moderated more rapidly than anticipated, reaching close to SBP’s medium-term target range in October.
“Today, the Monetary Policy Committee decided to cut the policy rate by 250 basis points to 15%, effective November 5, 2024,” the SBP said. “The Committee noted that food inflation has sharply declined, global oil prices remain favourable, and there were no adjustments to gas tariffs and petroleum development levy (PDL) rates,” which helped ease inflationary pressure.
October inflation figures revealed a Consumer Price Index (CPI) increase of just 7.2%, a sharp decline from its peak of 38% in May 2023. This is the first time inflation has returned to single digits in three years, breaking a 33-month period of double-digit inflation that began in November 2021.
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The SBP acknowledged two key developments that supported its decision: the International Monetary Fund’s (IMF) recent approval of Pakistan’s extended fund facility program, which has helped reduce uncertainty and strengthened external financial inflows, and improved market sentiment from surveys showing that both consumer and business inflation expectations have decreased.
Moreover, the central bank noted that secondary market yields on government securities and the Karachi Interbank Offered Rate (KIBOR) have also declined, indicating a broad-based shift towards stability in financial markets.
“This monetary policy stance is aimed at sustaining price stability on a durable basis and maintaining inflation within the target range of 5-7%,” stated the SBP, signaling a commitment to controlling inflation in the medium term.
The SBP’s decision marks a reversal of its aggressive rate hikes since August 2021, when it raised the policy rate from 7% to a peak of 22% in April 2023 as part of its efforts to curb inflation. Since inflation has eased, the central bank has successively lowered the rate to 17.5% before Monday’s announcement of a further reduction to 15%.
