SBP slashes policy rate by 200bps
Last month, the central bank cut its key interest rate by 250bps to 15%
The State Bank of Pakistan (SBP) has officially reduced its key policy rate by 200 basis points (bps), bringing it down to 13%.
This decision, made during the Monetary Policy Committee (MPC) meeting on Monday, December 16, 2024, marks the fifth consecutive rate cut, reflecting ongoing efforts to stimulate economic activity amidst declining inflation rates.
The latest cut follows a significant reduction of 250bps in November, totalling a cumulative decrease of 900bps since June 2024.
The policy rate has now been lowered from a previous high of 22%, which was maintained for over a year.
The decision to cut rates is largely attributed to a notable drop in inflation, which has eased significantly in recent months. For instance, the annual consumer price inflation rate fell to 4.9% in November, marking a 78-month low.
The SBP aims to align inflation with its medium-term target of 5-7%, indicating that despite the cuts, real interest rates remain positive and are intended to support macroeconomic stability.
Following the announcement, market instruments such as the KIBOR and Treasury bill rates have shown declines, reflecting expectations of continued easing in monetary policy.
Analysts predict that even after this cut, real interest rates will remain higher than historical averages, providing a buffer against potential inflationary pressures in the future.
This strategic move by the SBP is seen as a response to both domestic economic conditions and external financial dynamics, aiming to foster growth while maintaining control over inflation.
