SBP expected to cut policy rate by 200bps on December 16

ISLAMABAD: The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) will meet on Monday, December 16, 2024, to decide on the country’s monetary policy, as announced in a press release.

The SBP will then share the details of its decision through a statement later that day.

Many analysts are predicting that the central bank will lower interest rates by 200 basis points (bps), bringing the policy rate down to 13 per cent.

This follows the SBP’s previous surprise cut, when it reduced rates by 250bps, much more than the expected 200bps. However, this time, despite having room to move, the SBP is likely to take a more measured approach, keeping real interest rates positive while also considering future inflation trends.

Business leaders, particularly those from industry, have been calling on the SBP to reduce rates to single digits, arguing that the current high interest rates are holding back private sector growth.

They say that these rates are making it harder for businesses to access credit, slowing down the economy, and putting Pakistan at a disadvantage internationally. With inflation on the decline, they are urging a substantial rate cut of 5 per cent.

Prominent industrialist Muhammad Kamran Arbi made the case for lower rates to boost economic activity, stressing that businesses need access to both long- and short-term financing.

He pointed out that while high interest rates benefit those with large deposits, reducing rates would encourage these individuals to look for other investment options, helping to bring idle cash back into circulation.

Farooq Shaikhani, a former president of the Hyderabad Chamber of Small Traders and Small Industry (HCSTSI), also weighed in, noting that current measures don’t seem to be solving the challenges facing small businesses.

He questioned why interest rates remain high when the stock market is hitting new highs. Despite claims of low inflation and a better trade deficit, Shaikhani said the benefits haven’t reached the everyday citizen or the smaller traders. Inflation is still a heavy burden, and borrowing costs remain too high for small businesses to thrive.

He urged the government to make sure that economic growth benefits small industries and ordinary people, not just a select few. He also called on the SBP and policymakers to address these concerns when they meet to discuss the upcoming monetary policy.

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