The State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) reduced the policy rate by 200 basis points to 13% on December 17, 2024. This marks the fifth consecutive rate cut, totaling a 900 bps reduction during FY 2024-25, as inflation continues to ease.
Headline inflation dropped to 4.9% year-on-year in November 2024, aligning with MPC projections. This decline was attributed to lower food inflation and the fading impact of gas tariff hikes from November 2023. However, core inflation remained high at 9.7%, with consumer and business inflation expectations remaining volatile. The MPC noted inflation could stay unpredictable in the near term before stabilizing within the target range.
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Economic growth prospects have improved, as indicated by recent high-frequency economic activity data. The MPC emphasized that measured rate cuts are balancing inflation and external pressures while fostering sustainable growth.
The committee highlighted key macroeconomic developments since its last meeting. The current account surplus extended into a third month in October 2024, boosting SBP reserves to $12 billion despite weak financial inflows and debt repayments. Favorable global commodity prices supported domestic inflation and reduced the import bill. Credit to the private sector increased, driven by improved financial conditions and banks meeting deposit-to-advance ratios. However, tax revenue shortfalls widened.
The MPC expects the cumulative rate cuts since June 2024 to further stabilize inflation, aiming to achieve the target range of 5-7%, with their impact unfolding in the coming quarters.
