SBP cuts policy rate by 200bps to 17.5%

The State Bank of Pakistan (SBP) announced on Thursday that it has reduced the key policy rate by 200bps to 17.5 percent from 19.5 percent.

“At its meeting today, the Monetary Policy Committee (MPC) decided to cut the policy rate by 200 bps to 17.5 percent, effective from September 13, 2024,” said the central bank in a press release issued today.

“Both headline and core inflation fell sharply over the past two months,” said SBP, adding, “The real interest is still adequately positive to bring inflation down to the medium-term target of 5 – 7 percent and help ensure macroeconomic stability.”

It also revealed the factors that assisted them in cutting the policy rate.

“Global oil prices have fallen sharply, though they remain volatile. Second, SBP’s FX reserves are around $9.5 billion as of September 6, despite weak official FX inflows and continued debt repayments.”

It describes "the secondary market yields of government securities have declined noticeably since the last MPC meeting."

“inflation expectations and confidence of businesses have improved in the latest pulse surveys, while those of consumers have worsened slightly."

It added that this would be essential to achieve sustainable economic growth over the medium term.

Experts believe that lowering borrowing costs could stimulate investment and economic activity, and it would emerge as a positive step towards job creation for youth.

Earlier, the business community and financial experts were expecting a 150bps cut in the policy rate.