SBP cuts key policy rate by 100 basis points to 19.5 per cent

ISLAMABAD: The State Bank of Pakistan (SBP) has reduced its key policy rate by 1 percentage point, bringing it down to 19.5 per cent.

This decision reflects a recent decline in inflation, as noted by SBP Governor Jameel Ahmad during a press conference on Monday.

According to the Monetary Policy Committee’s statement, inflation in June 2024 was slightly lower than expected. The committee also noted that the inflationary impact of the Federal Budget for Fiscal Year 2025 (FY25) matched earlier predictions.

The SBP highlighted an improvement in the country’s external accounts, with an increase in its foreign exchange reserves despite substantial debt repayments. This positive trend, along with a significant real interest rate, allowed the committee to reduce the policy rate further to support economic growth while managing inflation.

Even with this rate cut, the MPC believes that the current monetary policy remains tight enough to guide inflation towards its target range of 5–7 per cent over the medium term.

This was the first policy meeting since Pakistan signed a staff-level agreement with the International Monetary Fund (IMF) and announced the federal budget for FY25.

A report from Arif Habib Limited (AHL) already indicated that 55.7 per cent of surveyed respondents expected the SBP to lower the policy rate. AHL predicted that the rate cut will bring the policy rate to 19.5 per cent, a level not seen since March 2023.

This expectation was supported by recent macroeconomic improvements and the new $7 billion, 37-month Extended Fund Facility (EFF) programme with the IMF.

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