SBP Cuts Policy Rate to 20.5% Amid Declining Inflation and Stable Economic Indicators

Karachi, The State Bank of Pakistan (SBP) has reduced its policy rate by 150 basis points to 20.5%, citing a significant decline in inflation and the effectiveness of prior contractionary policies. The announcement followed a monetary policy statement issued today, where the SBP outlined several economic factors influencing this decision, including the state of foreign exchange reserves, GDP growth, and the expected benefits from an IMF program.

According to AKD Securities Limited, the SBP Governor emphasized that the rate cut was justified by the larger-than-expected decrease in May 2024 inflation and the anticipated dampening effect of fiscal tightening on price pressures. Despite concerns about potential inflationary impacts from upcoming budgetary and energy price adjustments, the SBP expects its current policy measures to maintain inflation control. The Governor also highlighted the stable condition of the current account, bolstered by a recovery in exports and remittances, and noted that the import levels are not expected to surge as a result of the rate cut. The briefing further addressed the government’s debt repayments and the management of foreign currency payments, including significant increases in airline payments, with the aim to clear all related backlogs by the fiscal year's end.