The State Bank of Pakistan (SBP) has announced a cut in the interest rate, bringing it down by 2%, from 15% to 13%.
The decision was revealed during the Monetary Policy Committee (MPC) meeting chaired by the governor of the State Bank of Pakistan, marking the fifth consecutive reduction in the policy rate this year.
During the MPC meeting, the SBP says the country's micro and macroeconomic situation was reviewed, as well as the local and international economic indicators. The Bank also observed that the inflation rate was under control and the foreign exchange reserves were increasing.
The SBP's latest monetary policy highlights positive developments in the country’s economic landscape. The rupee remains stable, the current account has recorded a surplus, and remittances have shown steady growth. Moreover, the inflation rate fell to a six-year low of 4.9% in November, which played a key role in the decision to lower interest rates.
This 2% reduction is part of an overall 9% decrease achieved over the last five MPC meetings. Economic experts point out that the real interest rate had surged to 10% above inflation, making this adjustment necessary. They also believe the central bank was in a strong position to introduce further rate cuts if economic stability persists.
Trade organizations had earlier demanded a reduction of 3-5% in interest rates to stimulate business activity. While the announced cut fell short of these demands, it is expected to ease borrowing costs, with banks already offering loans below the Karachi Interbank Offered Rate (KIBOR) by approximately 13.5%, according to banking insiders.
Economic indicators such as rising foreign exchange reserves, which are at a 32-month high, and increasing control over inflation have strengthened the country’s macroeconomic position. The SBP’s proactive monetary policy aims to support sustainable economic growth while maintaining financial stability.
Prime Minister Shehbaz Sharif welcomed the 2% reduction in the policy rate by the State Bank, saying the policy rate coming to 13% was auspicious for the country's economy. "The reduction in policy rate will increase investors' confidence in the Pakistani economy," he added.
The PM further said the reduction in policy rate would also increase investment, as it had been reduced due to a low inflation rate. "I hope that inflation will decrease further in the coming months," Shehbaz vowed.
