Sixth straight cut: SBP lowers policy rate by 1 per cent

ISLAMABAD: The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has announced its sixth consecutive policy rate cut, reducing the rate by 100 basis points to 12 per cent. This marks a significant drop from June 2024, when the policy rate stood at 22 per cent.

In its previous meeting on December 16th, the MPC reduced the policy rate by 200 basis points, bringing it down to 13 per cent. This was the fifth consecutive reduction since June 2024, when the rate was 22 per cent.

Market experts had already expected the SBP to continue lowering rates, driven by a decline in inflation. Brokerage firm JS Global anticipated at least a 100 basis point cut in the policy rate.

According to their survey, 79 per cent of respondents expected a minimum cut of 100 basis points. Of these, 5 per cent expected a 50 basis point cut, 8 per cent predicted a reduction of 150 basis points or more, and 7 per cent foresaw a 200 basis point cut. Only 1 per cent expected no change.

Another brokerage house, Arif Habib Limited (AHL), also forecasted a 100 basis point cut. Their survey showed that 68.4 per cent of participants expected this reduction, 15.8 per cent anticipated a 200 basis point cut, and 10.5 per cent predicted a 150 basis point reduction. Meanwhile, 5.3 per cent of respondents expected no change.

PM welcomes reduction in policy rate

Prime Minister Muhammad Shehbaz Sharif welcomed the State Bank’s decision to reduce the policy rate by one per cent. He stated that lowering the policy rate to 12 per cent is a positive sign for the national economy.

The Prime Minister expressed that this decrease in the policy rate will boost investor confidence in Pakistan’s economy and lead to increased investment in the country. He attributed the reduction to the recent decline in inflation and remarked, “I am hopeful that inflation will further decrease in the coming months.”

The Prime Minister also praised the efforts of the Federal Minister of Finance and other relevant institutions for their commendable work in driving the country’s economic recovery.

Previous MPC meeting

At its last meeting, the MPC cut the key rate by 200bps, which aligned with market expectations. The committee noted that “growth prospects have improved,” citing positive economic indicators.

They also observed that their gradual approach to rate cuts was controlling inflation and external account pressures, while still supporting sustainable economic growth.

Since that meeting, several key economic events have occurred. The Pakistani rupee has depreciated by 0.2 per cent, and petrol prices have increased by 1.6 per cent. Internationally, oil prices have risen to over $79 per barrel amid uncertainty.

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