State Bank Reduces Interest Rate by 2% to 13%

Karachi: The State Bank of Pakistan (SBP) has announced a reduction in its key policy interest rate by 2%, bringing it down from 15% to 13%. The decision was made during a meeting of the Monetary Policy Committee chaired by SBP Governor Jameel Ahmad on Monday.
According to a statement issued by the central bank, the decision follows a comprehensive review of the country’s macroeconomic indicators, including domestic and international economic factors. The statement highlighted that the Pakistani rupee has remained stable, the current account is in surplus, remittances have increased, and inflation has been controlled. Additionally, foreign exchange reserves have risen, and inflation reached a six-year low of 4.9% in November.
This is the fifth consecutive reduction in the interest rate, bringing the cumulative reduction to 9% over five meetings.
Experts’ Reaction:
Experts believe that with the real interest rate now positive at 10%, the SBP was in a position to lower the rate further. They also noted that the Pakistani rupee has remained stable, and the country’s foreign exchange reserves are at their highest level in 32 months.
Prime Minister Welcomes Rate Cut:
Prime Minister Shehbaz Sharif welcomed the SBP’s decision to reduce the policy rate by 2%. In a special statement, he expressed that the reduction to 13% is a positive step for the economy and will increase investor confidence, leading to a boost in investments. The Prime Minister also emphasized that the reduction was made possible due to low inflation, which he hopes will continue to decrease in the coming months.
He praised the efforts of the Federal Minister for Finance and other relevant institutions for their role in the economic recovery process.
Background of Recent Rate Cuts:
In a prior decision last month, the State Bank had reduced the policy rate by 250 basis points, bringing it down to 15%. The central bank had noted that inflation had dropped more quickly than expected, with food inflation particularly decreasing rapidly, alongside favorable international oil prices.
The SBP also projected that the average inflation for the fiscal year 2024 would be significantly lower than earlier forecasts of 11.5%-13.5%, despite risks such as geopolitical tensions in the Middle East and potential changes in government pricing policies.
Since June 2024, the SBP has cut the interest rate multiple times, with an initial reduction of 1.5% in June, followed by further cuts in July and September, which brought the rate to its current level of 13%.