Islamabad, Pakistan's central bank, announced on Thursday that it will cut the policy rate by 200 basis points (bps) to 17.5 percent from 19.5 percent amid easing inflation.
The State Bank of Pakistan (SBP) made the announcement in a statement following a meeting of its Monetary Policy Committee (MPC), which makes periodic adjustments in interest rates.
"The Monetary Policy Committee (MPC) decided to reduce the policy rate by 200 basis points to 17.5 per cent at its meeting today," read a statement issued by the SBP.
He added that the committee took into account "several factors that affect the inflation outlook."
The MPC "assessed that the real interest rate remains sufficiently positive to reduce inflation to the medium-term target" of 5 to 7 percent and help ensure macroeconomic stability, according to the statement.
The committee also noted that oil prices had fallen sharply and the SBP's foreign exchange reserves stood at $9.5 billion as of September 6.
"Third, government bond yields in the secondary market have declined markedly since the last MPC meeting," he said, adding that "inflation expectations and business confidence have improved in recent surveys, while those of consumers have worsened slightly.
The decision on the reduction was highly expected after inflation in August was recorded at 9.6 percent, a substantial improvement in terms of commodity prices. The MPC noted that the drop in August “reflected the impact of pent-up demand, reinforced by improved supply of major food products.”
In recent months, the SBP has started reducing interest rates from 22 per cent through two successive cuts of 1.5 per cent and 1 per cent.
The reduction will help the industrial sector borrow from banks at more reasonable rates and increase industrial production, which is essential to meet the 3.5 per cent annual growth target set by the government for fiscal year 2024-25. .
The State Bank of Pakistan (SBP) made the announcement in a statement following a meeting of its Monetary Policy Committee (MPC), which makes periodic adjustments in interest rates.
"The Monetary Policy Committee (MPC) decided to reduce the policy rate by 200 basis points to 17.5 per cent at its meeting today," read a statement issued by the SBP.
He added that the committee took into account "several factors that affect the inflation outlook."
The MPC "assessed that the real interest rate remains sufficiently positive to reduce inflation to the medium-term target" of 5 to 7 percent and help ensure macroeconomic stability, according to the statement.
The committee also noted that oil prices had fallen sharply and the SBP's foreign exchange reserves stood at $9.5 billion as of September 6.
"Third, government bond yields in the secondary market have declined markedly since the last MPC meeting," he said, adding that "inflation expectations and business confidence have improved in recent surveys, while those of consumers have worsened slightly.
The decision on the reduction was highly expected after inflation in August was recorded at 9.6 percent, a substantial improvement in terms of commodity prices. The MPC noted that the drop in August “reflected the impact of pent-up demand, reinforced by improved supply of major food products.”
In recent months, the SBP has started reducing interest rates from 22 per cent through two successive cuts of 1.5 per cent and 1 per cent.
The reduction will help the industrial sector borrow from banks at more reasonable rates and increase industrial production, which is essential to meet the 3.5 per cent annual growth target set by the government for fiscal year 2024-25. .
