SBP reduces key policy rate by 200bps

The State Bank of Pakistan (SBP), for a fifth successive time, reduced the key policy rate by 200 basis points to take it down to 13% on Monday.

This is the fifth successive cut since June 2024 when the rate stood at 22%.

The decision was made during the Monetary Policy Committee (MPC) meeting, which will be effective from December 17, read the SBP statement.

The consumer price index (CPI) for November clocked in at 4.9% — well below the general market consensus.

“However, the Committee noted that core inflation, at 9.7%, is proving to be sticky, whereas inflation expectations of consumers and businesses remain volatile. To this effect, the Committee reiterated its previous assessment that inflation may remain volatile in the near term before stabilizing in the target range.

“At the same time, growth prospects have somewhat improved, as reflected by the recent uptick in high-frequency indicators of economic activity. Overall, the Committee assessed that its approach of measured policy rate cuts is keeping inflationary and external account pressures in check, while supporting economic growth on a sustainable basis.”

In its key developments, the MPC highlighted that the current account had “remained in surplus for the third consecutive month in October 2024, which, amidst weak financial inflows and substantial official debt repayments, helped increase the SBP’s FX reserves to around $12 billion”.

Additionally, it noted that global prices had “remained generally favourable, with positive spillovers on domestic inflation and the import bill”.