Pakistan Cuts Policy Rate to 17.5%: SBP

Islamabad, Sep 12 (PTI) Pakistan's central bank Thursday announced that it will cut the policy rate by 200 basis points (bps) to 17.5 per cent from 19.5 per cent amid a reduction in inflation.

The State Bank of Pakistan (SBP) made the announcement in a statement after a meeting of its Monetary Policy Committee (MPC), which makes periodic adjustments in the interest rates.

"The Monetary Policy Committee (MPC) decided to reduce the policy rate by 200 bps to 17.5 per cent in its meeting today,” a statement released by the SBP read.

It added that the committee took into “account various factors impacting the inflation outlook”.

The MPC “assessed the real interest rate to still be adequately positive to bring inflation down to the medium-term target” of 5 to 7 per cent and help ensure macroeconomic stability, according to the statement.

The committee also noted that oil prices had fallen sharply and the SBP's foreign reserves stood at $9.5 billion on Sept 6.

“Third, secondary market yields of government securities have declined noticeably since the last MPC meeting,” it said, adding that “inflation expectations and confidence of businesses have improved in the latest pulse surveys, while those of consumers have worsened slightly”.

The decision on reduction had been keenly awaited after inflation in August was recorded at 9.6 per cent, a substantial improvement in terms of prices of essential commodities. The MPC noted that the decline in August “reflected the impact of contained demand, reinforced by improved supplies of major food items”.

The SBP in recent months began to bring down interest rates from 22 per cent by two successive cuts of 1.5 and 1 per cent.

The reduction will help the industrial sector to borrow from banks at more reasonable rates and increase industrial output, which is essential to meet the 3.5 per cent annual growth target set by the government for fiscal 2024-25.