State Bank of Pakistan (SBP) reduced its benchmark interest rate by 150 basis points on Monday. This was a decision that was largely anticipated and marked the bank’s first rate reduction in over four years.
Two days ahead of schedule and one week after statistics revealed that inflation had eased to a 30-month low of 11.8% in May, the key rate was decided to be trimmed to 20.5%.
According to a Topline Research study, 43% of respondents thought the policy rate will drop by 100bps. In a comparable way, 48% of respondents to a CFA Society Pakistan survey predicted that the policy rate will drop by up to 100bps. In contrast, 63% of respondents in a Bloomberg survey stated they anticipated a 100bps drop in the key rate.
Additionally, SBP has chosen to begin monetary easing for the first time in the previous four years (since June 25, 2020).
In an emergency meeting held towards the end of June of last year, the central bank hiked rates to a record high of 22% by 100 basis points.
One of Pakistan’s leading economists, Khaqan Najeeb, stated in an interview with media that the actual interest rate has become positive by 10%, based on the country’s 22% interest rate.
The 11.8% inflation rate indicated that inflation had dropped to a very low level. In Pakistan, a sizable space has been established to modify our interest rate.
The consumer price index (CPI), headline inflation, food inflation, and core inflation should all be heading lower in the future monetary policies.
According to Najeeb, Pakistan’s economy is now stuck, with growth hovering around 2.2% and the agriculture sector being the only source of income.