Karachi, December 16,2024: The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) has announced a reduction of 200 basis points (bps) in the key policy rate, bringing it down to 13%, effective December 17, 2024. This marks the fifth consecutive cut since June 2024, when the rate stood at 22%.
The MPC’s statement cited declining headline inflation, which fell to 4.9% year-on-year in November 2024, as a key factor for the decision. This decline was attributed to a drop in food inflation and the fading impact of gas tariff hikes from November 2023.
However, the committee highlighted persistent core inflation at 9.7% and volatile inflation expectations among consumers and businesses. It noted that while inflation might remain unstable in the near term, it is expected to stabilize within the target range of 5–7% over time.
The MPC observed signs of improving economic activity, supported by high-frequency indicators. Despite weak financial inflows and significant debt repayments, Pakistan’s current account posted a surplus for the third consecutive month in October 2024, helping boost SBP’s foreign exchange reserves to approximately $12 billion.
The committee also noted:
- Favorable global commodity prices, reducing domestic inflationary pressures and the import bill.
- Increased credit to the private sector, driven by eased financial conditions and banks’ efforts to meet advances-to-deposit ratio (ADR) thresholds.
- A widening shortfall in tax revenues.
The cumulative policy rate cuts since June 2024 are beginning to have a positive impact, with further effects expected in the coming quarters.
Analysts had largely anticipated this reduction. Newly-appointed Advisor to the Finance Minister on Economic and Financial Reforms, Khurram Schehzad, also endorsed the decision, stating that lower interest rates would reduce capital costs for businesses, increase savings on government debt servicing, and improve fiscal balance in the coming months.
In its previous meeting on November 4, the MPC had reduced the policy rate by 250bps to 15%. These back-to-back reductions reflect the SBP’s efforts to balance inflationary pressures with sustainable economic growth.
