The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) reduced the policy rate by 200 basis points to 13%, effective December 17, 2024. This decision reflects easing inflation and improved economic growth prospects while maintaining a balance between inflation stability and sustainable growth.
Inflation
Headline Inflation declined to 4.9% in November 2024 due to lower food inflation and the fading impact of gas tariff hikes from November 2023.
Core Inflation remains sticky at 9.7%, with volatile inflation expectations.
Inflation for FY25 is expected to average well below the earlier forecast of 11.5-13.5%, though risks remain (e.g., revenue measures, food inflation, global prices).
Economic Growth
Growth prospects have improved, with real GDP growth for FY25 projected in the upper half of the 2.5-3.5% range.
Industrial and agricultural activity is gaining momentum, supported by better-than-expected cotton arrivals and strong performance in manufacturing sectors like textiles, food, and automobiles.
External Sector
The current account surplus reached $0.2 billion during July-October FY25, supported by robust remittances (+8.7% export growth) and favorable global commodity prices.
FX reserves improved to $12 billion, projected to exceed $13 billion by June 2025.
Fiscal Sector
Fiscal balances improved, but the tax revenue shortfall widened despite 23% growth in Federal Board of Revenue (FBR) collections during July-November FY25.
Declining interest payments on domestic debt offer some fiscal relief, but meeting primary surplus targets will require additional reforms.
Money and Credit
Broad money growth slowed to 13.9% y/y in November due to lower government borrowing.
Private sector credit surged, driven by easing financial conditions and banks meeting advances-to-deposit ratio (ADR) thresholds.
Outlook and Risks
The MPC expects inflation to stabilize within the target range of 5-7% in the medium term. Economic growth is supported by easing financial conditions and improving business confidence. However, risks to the outlook include revenue measures, global commodity price volatility, and potential food inflation pressures.
https://www.sbp.org.pk/m_policy/2024/MPS-Dec-2024-Eng.pdf
