- SBP cuts policy rate to 13% in today’s meeting.
- The consumer price index for November stood at 4.9%.
- This brings total cuts to 900 basis points since June.
and rising global commodity prices.
KARACHI: The State Bank of Pakistan (SBP) on Monday reduced its policy rate by 200 basis points (bps) to 13 per cent, marking its fifth consecutive cut as inflation continues to fall.
Last month, the central bank cut its key interest rate by 250 basis points, to 15%, at least 0.5% higher than market expectations amid falling inflation.
The Consumer Price Index (CPI) for November came in at 4.9%, in line with Monetary Policy Committee (MPC) expectations, well below the general market consensus.
“This deceleration is mainly due to the continued decline in food inflation as well as the gradual disappearance of the impact of the increase in gas prices in November 2023,” noted the MPC, adding that inflation below The underlying rate, at 9.7%, is proving to be sticky, while consumer and business inflation expectations remain volatile.
Pakistan’s latest move makes this year’s cuts the most aggressive among emerging market central banks in the current easing cycle, barring outliers like Argentina.
The committee, which met today, also noted that the current account remained in surplus for the third consecutive month in October 2024, which helped increase foreign exchange reserves to around $12 billion.
“Secondly, global commodity prices remained generally favorable, with positive spillover effects on domestic inflation and import bills. Third, credit to the private sector recorded a notable increase, largely reflecting the impact of easing financial conditions and the efforts of banks to cope with the progress. -deposit ratio thresholds (ADR). Finally, the shortfall in tax revenues from the objective has widened,” he adds.
The statement said that taking into account the above developments, the MPC believes that the real policy rate remains sufficiently positive to stabilize inflation within the target range of 5-7%.
The bank said it expected average inflation to be “significantly lower” than its previous forecast range of 11.5% to 13.5% in 2025.
He added that the inflation outlook was sensitive to certain risks, including measures to close the government revenue gap as well as food inflation and rising global commodity prices.
“Inflation could remain volatile in the short term before stabilizing within the target range,” the bank said.
Pakistan is navigating a difficult economic recovery path and was supported by a $7 billion facility from the International Monetary Fund (IMF) in September.
The bank noted that “considerable efforts and additional measures” would be required for Pakistan to meet its annual revenue target, a key objective of the IMF agreement.
The 12 analysts interviewed by Reuters a reduction of 200 basis points is expected, after inflation fell sharply, slowing to 4.9% in November, largely due to a high base a year earlier, lower than the forecast government and significantly lower than the multi-decade high of around 40% in May last year. .
Monday’s decision follows cuts of 150 basis points in June, 100 basis points in July, 200 basis points in September and a record 250 basis point cut in November, which sent the rate compared to its historic high of 22%, set in June 2023 and left unchanged for one year.
This brings total cuts to 900 basis points since June.