State Bank of Pakistan Cuts Key Interest Rate as Inflation Eases to Lowest in Six Years

Pakistan’s central bank has made its fifth consecutive interest rate cut, reducing the benchmark rate by 200 basis points to 13%. This move comes as inflation has eased to its lowest level in more than six years, providing the State Bank of Pakistan (SBP) with room to stimulate economic growth.

The SBP’s decision aligns with expectations, as all 41 economists surveyed by Bloomberg predicted a rate reduction, with 26 forecasting the exact measure. The rate cut brings Pakistan’s interest rate to its lowest level since April 2022.

In a statement, the SBP highlighted that its gradual approach to cutting rates has been effective in managing inflationary pressures and stabilizing external accounts, while simultaneously supporting sustainable economic growth. Consumer prices are now expected to be well below previous forecasts of 11.5% to 13.5% for the fiscal year ending in June, further boosting the central bank’s confidence in its monetary policy.

November saw inflation in Pakistan fall to its lowest level in more than six years, paving the way for the interest rate cut. Since June, the SBP has reduced the benchmark rate by a total of 900 basis points. Despite this, the central bank reassured that the real policy rate remains sufficiently positive to bring inflation within the target range of 5% to 7%.

The country’s economy is showing signs of recovery, bolstered by a $7 billion loan from the International Monetary Fund and an increase in remittances. As of December 6, Pakistan’s foreign exchange reserves stood at $12.05 billion, the highest since March 2022, providing a further boost to economic stability.

This strategic move reflects the SBP’s commitment to fostering growth while maintaining control over inflation, signaling a positive outlook for Pakistan’s economic future.