The State Bank of Pakistan (SBP) has further eased monetary policy, reducing its policy rate by 100 basis points to 19.5% in its meeting today. This marks the second consecutive rate cut after maintaining a steep rate of 22% for a year.
The decision comes amid a persistent decline in the Kibor below the 20% mark for the past month. The SBP had previously lowered the policy rate by 150 basis points on June 10, 2024.
This move is expected to stimulate economic activity by reducing borrowing costs for businesses and individuals. However, the central bank will continue to closely monitor inflation to ensure it remains within the target range.
https://www.sbp.org.pk/m_policy/2024/MPS-Jul-2024-Eng.pdf
Key Points of Monetary Policy Statement:
- Inflation: Inflation is slightly better than anticipated in June 2024, and the impact of the FY25 budgetary measures is in line with expectations.
- External Account: The external account has improved, with the current account deficit narrowing sharply in FY24 and SBP's FX reserves increasing significantly.
- IMF Program: Pakistan reached a staff level agreement with the IMF for a 37-month EFF program of about $7.0 billion.
- Economic Activity: High-frequency indicators reflect moderate economic activity, with growth in the agriculture sector expected to slow down in FY25.
- Inflation Outlook: Average inflation is expected to remain in the range of 11.5-13.5 percent in FY25, down significantly from 23.4 percent in FY24.
MPC's Decision:
The MPC believes there is room to further reduce the policy rate in a calibrated manner to support economic activity, while keeping inflationary pressures in check. The MPC also emphasized the importance of achieving fiscal consolidation, timely realization of planned external inflows, and addressing underlying weaknesses in the economy through structural reforms.