The State Bank of Pakistan (SBP) has reduced the key policy rate by 200 basis points, lowering it to 17.5%, the Monetary Policy Committee (MPC) announced on Thursday. This marks the third consecutive rate cut, following reductions of 150bps in June and 100bps in July.
In a statement, the MPC cited a faster-than-expected decline in inflation, attributed to delayed hikes in energy prices and favorable global trends in oil and food costs. Both headline and core inflation have sharply decreased in the past two months.
Despite positive developments such as declining oil prices and improved foreign exchange reserves, the committee highlighted the need for cautious monetary policy to ensure sustained inflation reduction. The MPC believes the real interest rate remains sufficiently positive to bring inflation within the medium-term target of 5-7%, supporting macroeconomic stability.
Looking ahead, the MPC expects the continued easing of inflationary pressures and the impact of recent rate cuts to bolster growth in Pakistan’s industrial and services sectors. It maintained its GDP growth projection at 2.5-3.5% for FY25.
Global factors, such as softer crude oil prices, have improved Pakistan’s trade outlook, while strong remittances are expected to keep the current account deficit within the projected range of 0-1% of GDP for FY25. The MPC also noted that the IMF program’s inflows will further strengthen the country’s foreign exchange reserves.
Inflation for FY25 may fall below the earlier forecast of 11.5-13.5%, contingent on achieving fiscal targets and timely external inflows.
