Islamabad: In a strategic move, the State Bank of Pakistan (SBP) has decided to reduce its key policy rate by 200 basis points, adjusting it from 19.5% to 17.5%. This rate cut is part of the SBP’s broader objective to manage inflation expectations and stabilize the macroeconomic environment.

According to Zameen.Com, the Monetary Policy Committee (MPC) of the SBP made this decision based on several positive economic indicators, including a decrease in global oil prices and an enhancement in the country’s foreign reserves. The committee assessed that the adjusted real interest rate would effectively aid in lowering inflation to the targeted range of 5-7%.

The recent drop in inflation to 9.6% in August, driven by reduced consumer demand and improved food supply chains, supported the MPC’s decision for a notable rate reduction. This move aligns with financial forecasts, which had projected a rate cut of between 150 to 200 basis points. Some sectors had even suggested more substantial cuts to foster economic growth.

This latest rate adjustment marks the third reduction in the fiscal year, demonstrating the SBP’s commitment to balance inflation control with the necessity to stimulate the economy. These measures are also in line with fulfilling conditions of a USD 7 billion loan agreement with the IMF, aiming to boost economic activities and enhance job creation with an anticipated growth rate of 3.5% for FY25.