On Monday, the State Bank of Pakistan (SBP) lowered the policy rate by one percentage point, bringing it down from 13% to 12%.
This decision follows the recent meeting of the Monetary Policy Committee, which highlighted significant improvements in key economic indicators, including a sustained current account surplus and a substantial decrease in inflation.
SBP Governor Jameel Ahmad addressed the media after the meeting, explaining that the rate cut was made possible due to positive economic conditions, particularly the current account surplus, which has remained intact for six consecutive months.
“The persistent surplus in the current account and the significant reduction in inflation have created a favorable environment for this rate cut,” the governor said.
The current account has shown notable progress, recording a surplus of $1.2 billion over the past six months, compared to a $4.1 billion deficit in the previous period. This has helped stabilize foreign exchange reserves, which are expected to surpass $13 billion by June 2025.
The governor noted that the reduction in the policy rate, amounting to 10% over the last seven months, is expected to gradually boost the economy by stimulating growth and economic activity.
He projected that GDP growth for the current fiscal year would range between 2.5% and 3.5%, driven by increased oil consumption and rising economic activity. However, agricultural growth remained weak in the first quarter, growing by just 1%, compared to 8% during the same period last year.
While foreign exchange inflows were lower than expected in the first half of the fiscal year, they are anticipated to rise in the second half.
The SBP has repaid $6.4 billion in external debt, with an additional $3.6 billion scheduled for repayment in the next six months. Multilateral inflows are also expected to support the external account.
The governor assured that external payments are being made promptly, and banks no longer need SBP approval for transactions. Shipping companies and airlines are processing external payments without delays, and imports, including oil, are showing signs of improvement.
He emphasized the SBP’s commitment to monitoring the financial system to prevent past issues and ensure effective oversight. The collaborative efforts of the government, central bank, and market have contributed to these positive developments.
It’s worth noting that the policy rate had previously reached a record high of 22% in June 2024 before being reduced by 9% over five reviews. The latest reduction follows a 2% cut in the SBP’s review on December 17, 2024.
