The State Bank of Pakistan (SBP) announced on Monday a reduction in the key policy rate by 100 basis points (bps), bringing it down to 12 percent from 13 percent. This decision aligns with market expectations.
With this adjustment, the policy rate now stands at 12 percent, marking a total reduction of 1,000 bps since June 2024, when it was at 22 percent. The decision was made by the Monetary Policy Committee (MPC) and announced by SBP Governor Jameel Ahmad during a press conference.
Analysts had widely anticipated the 100 bps cut, citing government measures that have helped alleviate inflationary pressures. In December 2024, the central bank had already reduced the policy rate by 200 bps to 13 percent. Over the past five MPC meetings, the SBP has slashed the rate by a cumulative 900 bps.
The SBP highlighted in its official statement that “headline inflation declined to 4.9 percent year-on-year in November 2024, in line with the MPC’s expectations. This deceleration was largely attributed to the continued decline in food inflation and the fading impact of the gas tariff hike introduced in November 2023.”
However, the MPC acknowledged that core inflation remains stubbornly high at 9.7 percent, with consumer and business inflation expectations remaining volatile. The committee reiterated its earlier projection that inflation could remain unpredictable in the short term before stabilizing within the target range.
On the economic growth front, the committee noted improved prospects, citing a recent increase in high-frequency indicators of economic activity. “The Committee assessed that its measured approach to policy rate cuts is effectively balancing inflationary and external account pressures while supporting sustainable economic growth,” it stated.
