SBP Slashes Interest Rate By 100bps, Sets Policy Rate At 12 Precent

SBP Governor Jameel Ahmad presided over the Monetary Policy Committee (MPC) meeting, the decision was made. He subsequently announced it during a news conference.

 Monetary Policy Announcement

• The adjustment to the policy rate equals a downward revision by 100 basis points to 12 percent. 

• December of 2024 saw the measure of inflation down to 4.1 percent in Pakistan. 

• inflation is anticipated within limits of  5-7 percent during FY2024-25.

• The current account was in surplus by 580 million dollars.

• The foreign currency reserves are at 16.19 billion dollars. 

• This is the cut in policy rates for the sixth consecutive time, since June 2024. 

• Since June 2024, a total cut of 1,000 basis points has been made on the policy rate, which now stands at 12 percent from an all-time high of 22 percent. 

Economic Performance and Future Outlook

Growth and Industrial Activity

• The economy of Pakistan grew by 0.92 percent in the first quarter of FY2024-25. 

• Large-scale manufacturing (LSM), with some sectors like textiles, food and beverages, and automobiles gaining momentum. 

• Real GDP growth is expected to remain in the range of 2.5 - 3.5 percent for FY2024-25.

• Logged slowdown also, the agriculture sector grew only by 1.2 percent in Q1-FY25, as against 8.1 percent in the last year. 

External Sector and Foreign Reserves

• The current account surplus stood at $0.6 billion in December 2024, bringing the cumulative surplus to $1.2 billion for H1-FY25.

• By June 2025, SBP's foreign exchange reserves are expected to be $13 billion, backed by improved financial inflows and lower debt repayments. 

Inflation Trends & Monetary Strategy

• Inflation has maintained its downward trend, falling from 4.9 percent in November to 4.1 percent in December, with stable exchange rates, adequate food supply, and adjustments in electricity tariffs contributing to the same.

• However, inflation is expected to be volatile at the upper threshold of 7 percent by the end of FY25. 

• The MPC has reaffirmed its commitment to maintaining a positive real policy rate to anchor inflation.

If implemented effectively, these measures could bring down inflation, restore economic confidence, strengthen purchasing power, and foster a stable environment for sustainable growth and development.