State Bank Reduces Policy Rate by 2% to Boost Economic Growth

The State Bank of Pakistan (SBP) has announced a 200 basis points reduction in its policy rate, cutting it from 15% to 13%. This decision, effective December 17, is aimed at bolstering economic growth and maintaining macroeconomic stability amid easing inflationary pressures.

Monetary Policy Highlights:

• Inflation Eases: November 2024 saw inflation drop to 4.9%, significantly lower than projections, prompting the rate adjustment.
• Reserves Strengthened: Foreign exchange reserves have risen to $12 billion, offering stability to the external account.
• Economic Growth Outlook: GDP growth for FY2025 is estimated between 2.5% and 3.5%, reflecting improved economic fundamentals.
• Fiscal Adjustments: The current account deficit is expected to narrow to between 0% and 1% of GDP by the end of 2025.

The SBP noted that this is the fifth consecutive rate cut in its ongoing easing cycle. The move is expected to encourage consumer lending, reduce borrowing costs, and strengthen sustainable economic growth on a stable foundation.