Karachi: The State Bank of Pakistan (SBP) has reduced its policy rate by 100 basis points, bringing it down to 19.5%. This move comes as part of the central bank's ongoing efforts to manage economic stability while targeting long-term inflation goals. The adjustment was announced following a detailed analysis of current economic indicators which include a favorable inflation outlook, consistent budgetary performances, and strengthening of the external account, alongside significantly higher real interest rates.

According to AKD Securities Limited, the SBP's decision is influenced by various positive economic trends. A notable improvement was seen in the Current Account Deficit (CAD), which has substantially reduced in FY24, alongside an achievement of a staff-level agreement with the IMF and a strategic approach to managing inflation and business confidence through continued monetary tightening. The SBP also highlighted the positive impact of monetary easing in advanced economies on Pakistan's economic landscape.

The SBP anticipates GDP growth to range between 2.5% to 3.0% for FY25, with inflation expected to stabilize within 11.5% to 13.5%. The CAD is projected to remain between 0% to 1% of GDP, with foreign exchange reserves aimed to reach US$13bn by June 2025. Additionally, the bank reported a significant increase in its foreign exchange reserves from US$4.4bn in June 2023 to over US$9.0bn by June 2024.

The briefing also addressed the substantial clearance of backlog in dividend and profit repatriations, with the SBP releasing US$2.2bn in FY24 compared to US$331mn in FY23, and highlighted the absence of import restrictions. Looking forward, the government anticipates a need for substantial debt servicing in FY25, with strategies in place to manage potential financing gaps through various international borrowing measures, while aiming to improve the country's credit rating before pursuing further Eurobond issuance.