The MPC expects this downward trend in inflation to persist; however, it acknowledged ongoing risks related to the timing and scale of future energy tariff adjustments and global commodity price fluctuations
ISLAMABAD: In a notable shift in monetary policy, the State Bank of Pakistan (SBP) announced a significant reduction in its policy rate, lowering it by 200 basis points to 17.5 percent on Thursday. This adjustment reflects the central bank’s response to a sharper-than-expected decline in both headline and core inflation over the past two months. The Monetary Policy Committee (MPC) of the SBP attributed this rate cut to a combination of factors, including falling global oil and food prices and a delay in the anticipated increase in administered energy prices. These developments have contributed to a more favorable inflationary environment, prompting the central bank to ease its monetary stance.
Recent data reveals a notable decline in inflation, with the headline rate dropping to 9.6 percent year-on-year in August, down from 12.6 percent in June. Core inflation also saw a decrease, settling at 11.9 percent, a reflection of improved food commodity supplies and reduced domestic demand. The MPC expects this downward trend in inflation to persist; however, it acknowledged ongoing risks related to the timing and scale of future energy tariff adjustments and global commodity price fluctuations.
The policy rate cut, effective from September 13, 2024, is anticipated to benefit the industrial and services sectors, potentially boosting economic activity. Conversely, the agriculture sector faces challenges, particularly due to an expected shortfall in cotton production. Despite these sectoral issues, the SBP has maintained its GDP growth projection for the fiscal year 2025 between 2.5 percent and 3.5 percent.
As of September 6, 2024, the SBP’s foreign exchange reserves stood at $9.5 billion, supported by remittance inflows and a rebound in exports, which have helped contain the current account deficit to $0.2 billion in July 2024. However, tax collection for July and August 2024 fell short of the Federal Board of Revenue’s (FBR) targets, creating additional pressure on fiscal policy to achieve revenue goals for the remainder of the year.
The SBP has emphasized the need for a cautious approach to future monetary policies, balancing the objective of controlling inflation with the goal of supporting sustainable economic growth over the medium term. The central bank’s updated policy stance aims to navigate the complex interplay of domestic and global economic factors while fostering a stable macroeconomic environment.
#SBPPolicyRate, #InterestRateCut, #InflationTrends, #MonetaryPolicy, #EconomicGrowth, #HeadlineInflation, #CoreInflation, #EnergyPrices, #CommodityPrices, #PakistanEconomy, #CentralBank, #FiscalPolicy, #EconomicForecast, #FinancialStability, #EconomicReforms, #SBPUpdate
