KARACHI – The State Bank of Pakistan (SBP) has announced a reduction in its policy rate by 100 basis points, lowering it to 12 percent. This adjustment will take effect from January 28, 2025.
Monetary Policy Committee’s Deliberations
The decision was made following a meeting convened by the Monetary Policy Committee (MPC), with the central bank issuing a press release detailing the outcome.
Inflation Trends and Economic Conditions
The MPC observed that inflation has been consistently decreasing, aligning with prior expectations. In December, inflation registered at 4.1 percent on a year-over-year basis. This decline is largely attributed to moderate domestic demand and favorable supply-side conditions, along with a beneficial base effect.
| Inflation Statistics | December 2024 | December 2023 |
|---|---|---|
| Year-over-Year Inflation (%) | 4.1% | [Previous year] |
Inflation Outlook and Core Inflation Trends
The inflation rate is expected to continue decreasing in January before experiencing a slight increase in the upcoming months. While core inflation is gradually easing, it remains at elevated levels.
Signs of Economic Recovery
High-frequency indicators suggest a gradual improvement in economic activity.
| Economic Indicator | Status |
|---|---|
| Economic Activity | Gradual Improvement |
| High-Frequency Indicators | Showing Positive Trends |
Impact of Previous Rate Cuts
The MPC highlighted that the significant reduction of 1,000 basis points in the policy rate since June 2024 is expected to continue supporting economic activity in the months ahead.
| Policy Rate Reduction (bps) | Date | Current Rate |
|---|---|---|
| 1000 bps | June 2024 – January 2025 | 12% |
Real GDP Growth and Current Account Performance
While real GDP growth for Q1-FY25 was slightly below the MPC’s expectations, the current account remained in surplus in December 2024. However, the SBP’s foreign exchange reserves declined due to low financial inflows and higher debt repayments.
| Indicator | Status |
|---|---|
| Real GDP Growth (Q1-FY25) | Below Expectations |
| Current Account | Surplus |
| FX Reserves | Declining |
Tax Revenue and Global Oil Price Volatility
Despite a significant increase in tax revenues in December, the figures still fell short of the targets for the first half of FY25. Moreover, global oil prices have experienced heightened volatility in recent weeks, adding complexity to the economic landscape.
| Indicator | Status |
|---|---|
| Tax Revenue (H1-FY25) | Below Target |
| Global Oil Prices Volatility | High |
Global Economic Uncertainty
The global economic policy environment has become more unpredictable, prompting central banks worldwide to adopt a more cautious approach.
Need for Cautious Monetary Policy Stance
In light of these factors and the evolving risks, the MPC believes that maintaining a cautious monetary policy stance is essential to achieving price stability, which is fundamental to ensuring sustainable economic growth.
Maintaining a Positive Real Policy Rate
The Committee stressed that the real policy rate must remain adequately positive, with a forward-looking focus, to stabilize inflation within the target range of 5 – 7 percent.
| Real Policy Rate Target | Range |
|---|---|
| Inflation Target Range | 5% – 7% |
