State Bank Announces 5th Consecutive Interest Rate Cut, Reduces by 2%

The SBP Cuts Interest Rate. Has announced its latest monetary policy, reducing the interest rate by 200 basis points, bringing it down to 13%.

Fifth Consecutive Rate Cut

According to the statement, the Monetary Policy Committee (MPC) has implemented its fifth consecutive rate cut. The policy announcement came after a committee meeting. Last month, the SBP reduced the interest rate by 250 basis points, lowering it to 15%.

Inflation Decline and Economic Indicators

In a previous statement, the SBP noted that the MPC decided to reduce the policy rate by 250 basis points to 15%, effective November 5, 2024. The MPC observed that inflation has declined faster than expected, nearing its medium-term target range in October. The report highlighted a significant drop in food inflation, favorable global oil prices, and the absence of adjustments in gas tariffs and the petroleum development levy, all contributing to reduced inflation.

Economic Outlook and Risks amid SBP Cuts Interest Rate

The committee also predicted that average inflation for FY2024 would remain significantly below the previous forecast range of 11.5% to 13.5%. However, the analysis pointed out risks to this outlook, including potential escalations in the Middle East conflict, resurgence of food inflation pressures, ad hoc adjustments in government-administered prices, and emergency tax measures to address revenue shortfalls.

Experts’ Predictions and Economic Drivers

Most experts had anticipated a 200-basis-point reduction, marking the fourth consecutive cut since June. Key drivers for the reductions include declining inflation, a narrowing current account deficit, and strong remittance inflows. In October, the annual inflation rate was recorded at 7.17%, while in September, it fell to 6.9%, the lowest in 44 months.

Historical Context of SBP Cuts Interest Rate

On June 10, 2024, the SBP announced its first interest rate cut in four years, reducing it by 1.5% to bring the rate down from 22% to 20.5%. Later, on July 29, the Governor of the State Bank, Jameel Ahmad, announced during a monetary policy briefing in Karachi that the rate would be reduced further to 19.5%. Subsequently, on September 12, the SBP announced another reduction in the policy rate, lowering it by 200 basis points to 17.5%.