The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) reduced the policy rate by 200 basis points to 13% on Monday. SBP Governor Jameel Ahmad announced the decision following the MPC meeting.
“Headline inflation dropped to 4.9% year-on-year in November 2024, aligning with the MPC’s expectations. This decline was largely attributed to easing food inflation and the diminishing effect of last year’s gas tariff hike,” Governor Ahmad explained.
Despite this, the MPC highlighted that core inflation remains stubborn at 9.7%, while inflation expectations from both consumers and businesses remain unpredictable. The committee expects near-term inflation volatility before it stabilizes within the target range.
The MPC also noted encouraging signs of economic growth, supported by an increase in high-frequency economic indicators. “The committee believes that gradual policy rate cuts are balancing inflation control, external account stability, and economic growth,” the statement read.
Key developments influencing the decision included:
- Current Account Surplus: For the third consecutive month (October 2024), the current account remained in surplus. This surplus helped bolster SBP’s foreign exchange reserves to $12 billion, despite weak financial inflows and significant debt repayments.
- Global Commodity Prices: Favorable trends in global commodity prices positively impacted domestic inflation and reduced the import bill.
- Private Sector Credit: Lending to the private sector increased, reflecting improved financial conditions and banks’ compliance with advances-to-deposit ratio (ADR) thresholds.
- Tax Revenue Shortfall: The committee acknowledged widening gaps in tax revenue collections relative to targets, which could affect fiscal stability.
The MPC’s cautious approach aims to support sustainable economic growth while managing inflationary pressures effectively.
