SBP reduces key policy rate by 200bps to 17.5pc

The Monetary Policy Committee (MPC) slashed the key policy rate by 200bps to 17.5% from the existing 19.5%, the State Bank of Pakistan (SBP) announced on Thursday, as inflation eased to the first single-digit figure in nearly three years. 

The new policy rate will be effective from September 13, 2024.

As per a statement released by the central bank, both headline and core inflation fell sharply over the past two months.

“The pace of this disinflation has somewhat exceeded the Committee’s earlier expectations, mainly due to the delay in the implementation of planned increases in administered energy prices and favourable movement in global oil and food prices,” it read.

During the meeting, the MPC acknowledged the inherent uncertainty related to these developments, which warranted a cautious monetary policy stance. In this regard, the Committee underscored the importance of the tight monetary policy stance in driving the sustained decline in inflation over the past year.

The Committee noted the following key developments since its last meeting that have implications for the macroeconomic outlook.

• Global oil prices have fallen sharply, though they remain volatile.
• SBP’s FX reserves are around $9.5 billion as of September 6, despite weak official FX inflows and continued debt repayments.
• Secondary market yields of government securities have declined noticeably since the last MPC meeting.
• Inflation expectations and confidence of businesses have improved in the latest pulse surveys, while those of consumers have worsened slightly.
• The Federal Board of Revenue (FBR) tax collection during July-August 2024 was lower than the target.