The State Bank of Pakistan (SBP) on Monday slashed the key policy rate by 250 basis points (bps) to 15%, at least 0.5% more than the market expectations, marking its fourth consecutive cut as inflation remains in single digits through October.
Analysts as well independent economists widely believed the central bank would cut its key interest rate further at its policy meeting, with policymakers continuing their efforts to revive a fragile economy as inflation eases off recent record highs.
“The inflation has declined faster than expected and has reached close to its medium-term target range in October,” the SBP’s Monetary Policy Committee (MPC) noted, adding that “the tight monetary stance continues to play an important role in sustaining the downward trend in inflation.”
The MPC, which met on Monday to decide the rate, attributed the disinflation to a sharp decline in food inflation, favourable global oil prices and the absence of expected adjustments in gas tariffs and Petroleum Development Levy (PDL) rates in recent months.
Average consumer price index inflation in the South Asian country is 8.7% in the current financial year, which started in July, the statistics bureau says. The International Monetary Fund (IMF) expects inflation to average 9.5% for the year ending June.
While the economy has started to gradually recover, and inflation has moved sharply down from a multi-decade high of nearly 40% in May 2023, analysts say further rate cuts are needed to bolster growth.
October inflation came in at 7.2%, slightly above the government’s expectation of 6% to 7%. The finance ministry expects inflation to slow further to 5.5% to 6.5% in November.
