Pakistan brings down policy rate to 12%
The State Bank of Pakistan (SBP) announced a reduction in its key policy rate
by 100 basis points (bps), bringing it down to 12% from 13%. This marks the
sixth consecutive cut since June 2024 when the rate was at 22%, aligning with
the expectations of the business community.
During a press conference, SBP
Governor Jameel Ahmed stated that the decision was made by the Monetary Policy
Committee (MPC) after assessing the inflation outlook. He noted encouraging
trends in foreign remittances and export performance, which have supported the
current account.
“While inflation is expected to
decrease further in January, core inflation remains elevated,” Governor Ahmed
cautioned. “Given these factors, we have taken a cautious approach.”
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issues schedule of monetary policy meetings for next six months
The central bank remains optimistic
about achieving $13 billion in foreign exchange (FX) reserves by June 2025.
Key
Highlights from the Monetary Policy Committee
- Inflation Trends:
The MPC observed a continued decline in inflation, which reached 4.1% year-on-year
in December 2024, driven by moderate domestic demand and favorable
supply-side conditions. However, core inflation remains high.
- Economic Activity:
High-frequency indicators pointed to gradual improvements in economic
activity, though real GDP growth fell short of expectations.
- Current Account:
Despite a surplus in December 2024, the SBP’s FX reserves declined due to
low financial inflows and significant debt repayments.
- Tax Revenues and Oil Prices: Tax revenues, despite an increase in December,
remained below target. Global oil prices exhibited heightened volatility,
presenting additional challenges.
The Committee emphasized a cautious
monetary policy stance to maintain price stability amid evolving risks.
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Reversal: SBP unexpectedly hikes rates by 100 basis points
Treasury
Bills and Interest Rate Adjustments
In last week’s treasury bill
(T-bill) auction, the government lowered cut-off yields, reflecting
expectations of further interest rate adjustments. The 12-month T-bill yield
dropped by 41 bps to 11.38%, contributing to a total monthly reduction of 90
bps.
This policy move underscores the
SBP’s focus on balancing inflation control with economic recovery while
addressing external vulnerabilities.