KARACHI: The State Bank of Pakistan on Monday announced a reduction in the interest rate by 150 basis points (bps), bringing it down to 20.5 percent.
In its statement, the Monetary Policy Committee (MPC) noted that although the significant decline in inflation since February was generally anticipated, the results for May were better than expected.
“The Committee found that underlying inflationary pressures are diminishing, aided by a tight monetary policy and fiscal consolidation.
“This is evidenced by a continued moderation in core inflation and a decrease in inflation expectations among consumers and businesses, as shown in recent surveys. However, the MPC acknowledged potential short-term risks to the inflation outlook due to upcoming budgetary measures and uncertainty about future energy price adjustments. Despite these risks and today’s rate cut, the Committee expects the cumulative effect of previous monetary tightening to help control inflationary pressures.”
This marks the first reduction in the key policy rate in four years. The last reduction was in June 2020 during the pandemic, after which the rate progressively increased from 7% to a record high of 22%.
