Karachi: The State Bank of Pakistan (SBP) has implemented a substantial policy rate cut of 200 basis points, bringing it down to 17.5%, as announced in their recent monetary policy update. This adjustment marks the third consecutive reduction in the ongoing monetary easing cycle, attributed to a faster-than-expected decline in inflation and favorable global commodity trends.
According to JS Global, the SBP’s decision was largely influenced by declining inflation rates, accelerated by postponed adjustments in administered energy prices and positive global commodity trends. The reduction positions the real interest rate at approximately 8%, although anticipated inflation data for September could adjust this rate to around 10%. The SBP has also revised its average inflation forecast for FY25, now expecting it to range between 9% and 11.5%, down from the previous estimate of 11.5% to 13.5%.
In the realm of external finances, the SBP Governor during the post-monetary policy briefing confirmed the government’s readiness to secure necessary external financing to meet the International Monetary Fund’s (IMF) requirements. The IMF board is expected to approve a US$7 billion three-year Extended Fund Facility (EFF) for Pakistan in their meeting scheduled for September 25, 2024. The preparation for this meeting follows successful negotiations and financial assurances from various development partners.
Further enhancing transparency, the SBP also announced the availability of three new datasets related to external flows and reserves. These include monthly SBP interventions, with a three-month delay; half-yearly projections of SBP’s foreign exchange reserves expected to surpass US$12 billion by March 2025; and detailed external debt repayment schedules.
In addressing current external payment obligations, the Governor noted that out of a total US$22 billion due in FY25, US$4 billion has been managed through outflows and rollovers, with US$18 billion remaining. The proactive financial management by the SBP aims to stabilize and strengthen Pakistan’s economic resilience amid ongoing global uncertainties.