Karachi, January 27, 2025: The State Bank of Pakistan (SBP) has announced a one percentage point reduction in the policy rate, bringing it down from 13% to 12%. This move reflects the bank’s confidence in the improving economic landscape.
The decision, taken during the latest Monetary Policy Committee (MPC) meeting, was driven by key economic improvements, including a sustained current account surplus and a notable decline in inflation.
Speaking to the press after the meeting, SBP Governor Jameel Ahmad highlighted the favorable conditions that made the rate cut feasible. “The ongoing surplus in the current account and the significant drop in inflation have created an environment conducive to this decision,” he said.
The current account balance has recorded a $1.2 billion surplus over the past six months, a sharp contrast to the $4.1 billion deficit during the same period last year. This improvement has also stabilized foreign exchange reserves, which are projected to exceed $13 billion by the end of June 2025.
Governor Ahmad emphasized that the policy rate reductions—totaling 10% over the last seven months—are expected to accelerate economic growth and activity. He projected GDP growth for the fiscal year to range between 2.5% and 3.5%, supported by increased oil consumption and other economic upticks. However, he noted that agricultural growth has slowed, recording just 1% in the first quarter compared to 8% in the previous year.
Foreign exchange inflows, although lower than anticipated in the first half of the fiscal year, are expected to improve in the latter half. The SBP has repaid $6.4 billion in external debt, with $3.6 billion remaining for the next six months. Multilateral inflows are anticipated to further support the external account.
The governor reassured stakeholders of the SBP’s commitment to financial stability. External payments are being made on time, and banks no longer require SBP approval for routine transactions. Shipping companies and airlines have resumed external payments without delays, while imports, including oil, are showing signs of recovery.
Governor Ahmad also underscored the importance of vigilant oversight to prevent past financial system issues. He attributed recent progress to combined efforts by the government, the central bank, and market forces.
It is worth noting that the policy rate reached a record high of 22% in June 2024 but has since been reduced by 9% over five consecutive reviews, including a 2% cut in December 2024.
This latest reduction marks a significant step toward fostering growth and stability in Pakistan’s economy.
