State Bank of Pakistan Reduces Interest Rate by 1% to 19.5%

Karachi: State Bank of Pakistan (SBP) has announced a new monetary policy, reducing the interest rate by 1%. Governor State Bank Jamil Ahmed made this announcement during a media briefing following the Monetary Policy Committee meeting.
Governor Jamil Ahmed stated that during the Monetary Policy Committee meeting, discussions focused on excessive liquidity and changes in external accounts. He highlighted a gradual decrease in inflation and noted improvements in the national economy. Excessive liquidity has been steadily declining, with a surplus of 12.6% observed last month compared to 38% in October last year, aligning with expectations of 23.4% for the average surplus last year.
He mentioned that the Monetary Policy Committee is further reducing the interest rate by another 1%, setting it at 19.5%. Governor Ahmed also reported reduced losses in current accounts with a deficit of $70 million last fiscal year, indicating improvements in both current and reserve accounts, which have increased from $5 billion to $9.4 billion by June 2024.
The Governor emphasized that all types of imports have been liberalized, with continuous external payments. Despite imports and payments, there has been improvement in the current account. Non-resident investors had withheld $2.2 billion in interest, contributing to a seven-fold increase in income despite a $70 million deficit in the current account.
Governor Jamil Ahmed further explained that there has been an improvement in airline royalties and technical fees payments, along with enhanced external accounts. Imports remain unrestricted, allowing importers to transact through their banks without requiring State Bank approval. Monthly net profits from imports increased to $1.3 billion despite these developments, stabilizing reserves.
He highlighted a decrease in oil imports during the first three months, dropping from $2.3 billion to $1.4 billion, attributed to international price reductions and volume reductions. Non-oil imports amounted to $3.2 billion, showing an increase of more than $1 billion in net profits.
Governor Jamil Ahmed forecasted GDP growth at 2.5% to 3.5% for the current fiscal year, with the current account deficit expected to remain between zero and 1%. He projected an average annual inflation target of 5% to 7%, with ongoing measures to achieve this target. The current account deficit is expected to reach up to $4 billion this fiscal year.
Regarding loans, Governor Jamil Ahmed confirmed that timely repayments of $26.2 billion in loans were made last year, addressing concerns about repayment delays. He stated that the $3.7 billion in interest and $20 billion in principal loans must be repaid. Governor Jamil Ahmed assured that Pakistan’s foreign loan repayments are manageable, indicating adequate capacity to meet obligations.
He reassured that despite foreign loan repayments, Pakistan’s reserves exceed $9 billion, with commercial loans accounting for $4 billion. Governor Jamil Ahmed affirmed that Pakistan’s financial obligations for foreign loans are manageable without causing any significant difficulties.
Lastly, Governor Jamil Ahmed mentioned that petroleum imports have decreased by $90 million monthly, with non-oil revenues stabilizing at the 2021-22 level.
Overall, the monetary policy adjustments are aimed at stabilizing economic indicators and fostering sustainable economic growth in Pakistan.