SBP Cuts Key Policy Rate by 100 Basis Points to 12%

The State Bank of Pakistan (SBP) has made a significant decision to cut its key policy rate by 100 basis points (bps), bringing it down to 12% as of January 27, 2025.

In a press conference, SBP Governor Jameel Ahmed announced that the Monetary Policy Committee (MPC), in its meeting today, had decided on the interest rate cut keeping the inflation outlook in mind.

In positive developments, the central bank chief noted that a positive trend in remittances. He highlighted that inflation numbers were also bound to come down in January. However, he warned that core inflation still remained high.

This reduction follows a series of cuts that have seen the rate decrease from an all-time high of 22% in June 2024, marking a total reduction of 1,000 bps over several months.

The bank had previously raised the rate to 22% in response to soaring inflation, which peaked at 38% in May 2023. This rate hike was part of measures to stabilize the economy under pressure from the International Monetary Fund (IMF) and was intended to control rampant inflation and manage fiscal deficits.

Following the peak, the SBP began a series of cuts starting with a 150 bps reduction in June 2024, followed by additional cuts that cumulatively reduced the rate significantly by early 2025.