Islamabad: The State Bank of Pakistan (SBP) is set to reduce the policy rate by 150 basis points to 18.0%, in response to a range of economic indicators pointing to subdued activity and moderated inflation pressures. This adjustment is part of a broader monetary easing strategy expected to continue throughout the fiscal year.

According to AKD Securities Limited, this policy shift comes as inflation in Pakistan eased back to single digits in August 2024 for the first time in nearly three years, influenced by lower food and fuel prices. The real interest rates in August stood at 9.8%, climbing above 11.0% based on a 12-month forward inflation projection. The Monetary Policy Committee (MPC) anticipates additional rate cuts totaling 300 basis points by the end of FY25. This strategic easing aligns with the current economic framework, marked by stable external accounts and a controlled current account balance, amid slowing M2 money supply growth and reduced bank lending to the private sector.

The external position of the country appears robust with a narrowed current account deficit and strong remittance inflows supporting the financial stability. Economic indicators, however, reflect ongoing weaknesses, with key sectors like agriculture and construction showing declines in activity. The SBP’s approach aims to mitigate potential inflation risks that could arise from anticipated tax rate increases intended to bridge fiscal gaps.