Enhanced investor sentiment and declining government yields further reinforced the rationale behind the rate cut
By our correspondent
ISLAMABAD: The State Bank of Pakistan (SBP) made a significant monetary policy shift on Monday, announcing a 250-basis-point reduction in its policy rate, bringing it down to 15 percent. This decision, effective from November 5, reflects the SBP’s assessment of easing inflation rates and a generally optimistic economic outlook for the country.
The Monetary Policy Committee (MPC) cited that inflation had been slower than anticipated, nearing the central bank’s medium-term target by October. Key factors contributing to this easing include stable food prices, favorable global oil conditions, and limited domestic tariff adjustments. While the MPC acknowledged that inflation volatility may persist, it projected that inflation could stabilize within the 5–7 percent target range in the near future.
In addition to domestic factors, the MPC pointed to international developments, notably the approval of Pakistan’s Extended Fund Facility by the International Monetary Fund (IMF), which has bolstered economic confidence and is expected to facilitate planned external inflows. Enhanced investor sentiment and declining government yields further reinforced the rationale behind the rate cut. The committee also noted positive trends in Pakistan’s real sector, highlighting growth in industries such as textiles, food production, and automobiles. The agricultural sector has benefited from stronger-than-expected output from the Kharif crop, adding to the overall economic confidence.
Looking ahead, the SBP projected real GDP growth for FY25 to fall within the range of 2.5 percent to 3.5 percent. On the external front, the current account recorded a surplus for the second consecutive month in September, buoyed by robust remittances and exports. Despite a rise in imports, SBP foreign reserves reached $11.2 billion by late October, with expectations for further increases in the coming months.
The SBP also revised its inflation outlook for FY25 downwards, adjusting it to below the previous forecast range of 11.5 percent to 13.5 percent. This change reflects a decrease in core inflation rates and an improving domestic supply situation. However, the bank has cautioned that potential risks loom on the horizon, particularly stemming from geopolitical tensions in the Middle East and possible ad hoc fiscal adjustments that could affect the economic landscape. Overall, this monetary policy adjustment indicates the SBP’s proactive approach in responding to changing economic conditions, aiming to foster a stable financial environment while promoting growth and inflation control in Pakistan.
