Pakistan Cuts Policy Rate to 17.5% Amid Inflation Reduction

Pakistan's central bank has cut the policy rate by 200 basis points to 17.5% as inflation shows signs of reduction. This decision by the Monetary Policy Committee aims to support macroeconomic stability and increase industrial output, aiding in meeting the government's growth targets for the fiscal year 2024-25.

Pakistan's central bank announced Thursday a reduction in its policy rate by 200 basis points, lowering it to 17.5% from the previous 19.5%. The decision is aimed at addressing a recent reduction in inflation.

The State Bank of Pakistan (SBP) revealed this move following a meeting of its Monetary Policy Committee (MPC), responsible for periodic adjustments to the interest rates. According to a statement from the SBP, various factors impacting the inflation outlook were considered in making this adjustment.

The committee highlighted that despite the reduction, the real interest rate remains adequately positive to bring down inflation to the medium-term target of 5% to 7%, ensuring macroeconomic stability. The MPC noted significant declines in oil prices and secondary market yields on government securities, alongside an improvement in business confidence, although consumer confidence saw a slight decline.

This eagerly awaited decision came after August's inflation rate was recorded at 9.6%, reflecting improved supplies of major food items. Recent interest rate cuts by the SBP from a peak of 22% have started to help the industrial sector by making borrowing more affordable, which is crucial for achieving the annual growth target of 3.5% set by the government for fiscal year 2024-25.

(With inputs from agencies.)