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The State Bank of Pakistan (SBP) has announced a one percentage point reduction in its key interest rate, bringing it down to 19.5%. This decision was revealed by SBP Governor Jameel Ahmad during a media briefing following the recent monetary policy meeting.
Ahmad attributed the rate cut to a gradual decrease in inflation and signs of economic recovery. The monetary policy committee decided to lower the interest rate by 100 basis points, reflecting their confidence in the country’s improving economic conditions. “The reduction in the interest rate reflects our confidence in the current economic trajectory,” Ahmad stated.
Future projections suggest that the average inflation rate will stabilize between 23% and 25%, a decrease from last year’s 23.4%. This adjustment follows an earlier rate cut in June, when the central bank reduced the policy rate from 22% to 20.5% for the first time in four years. This earlier reduction was driven by a significant slowdown in inflation, which had dropped to 11.8% in May from a high of 38% in May 2023.
Additionally, the SBP reported a reduction in the current account deficit, which fell to $700 million in the last fiscal year. Foreign exchange reserves saw a notable increase, rising by $5 billion to reach $9.4 billion by June 2024. The bank has also removed all import restrictions, easing external payments and allowing banks to resume dividend payments to foreign investors, with $2.2 billion in profits repatriated abroad—marking a sevenfold increase.
Improvements were also seen in payments for airline royalties and technical fees, and the oil import bill decreased from $2.3 billion to $1.4 billion in the first quarter due to lower international prices and reduced volumes. Non-oil imports increased to $3.2 billion, reflecting an additional $1 billion.
For the current fiscal year, the SBP projects GDP growth to be between 2.5% and 3.5%. The recent interest rate cut and supportive measures are part of the central bank’s strategy to foster economic growth and stability, marking a positive step toward strengthening Pakistan’s economy.
