Karachi: The State Bank of Pakistan (SBP) has made another significant cut to its Policy Rate, now set at 19.5%, as part of its continued monetary easing efforts. This move follows a substantial reduction last month and reflects adjustments in market yields and fiscal measures aligned with the International Monetary Fund's (IMF) recommendations.

According to JS Global, this decision by the SBP, marked by a total of 250 basis points cut in just two months, is influenced by the FY25 budget and a new IMF agreement that proposes a three-year Extended Fund Facility (EFF) arrangement worth about US$7bn. The market, anticipating these moves, had already seen an inversion in yield curves, with short-term rates reflecting these expectations.

The announcement came alongside key forecasts and strategies for the next fiscal year, including expected Current Account Deficit and major repayment schedules. The SBP governor pointed out that despite these rate cuts, borrowing costs for both the government and corporations have begun to decline, benefiting the broader economy. The next monetary policy statement, expected in September 2024, will coincide with the anticipated approval of Pakistan's EFF by the IMF, providing more detailed benchmarks and economic recommendations.

Furthermore, the SBP has forecasted inflation rates for FY25 to be between 11.5% and 13.5%, with foreign exchange reserves projected to grow from US$9.4bn to US$13bn by June 2025. This financial outlook is underpinned by over US$28bn in anticipated fresh inflows and rollovers, ensuring substantial external support and facilitating economic stability.