The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) on Monday cut the policy rate by 150 bps to 20.5 percent, effective from June 11, 2024, amid moderate GDP growth and declining inflation.
This is the first change in the interest rate in the last year as it was kept unchanged in seven previous sessions by the central bank.
The MPC noted that while the significant decline in inflation since February was broadly in line with expectations, the May outturn was better than anticipated earlier.
The Committee assessed that underlying inflationary pressures were also subsiding amidst a tight monetary policy stance, supported by fiscal consolidation.
“This is reflected by continued moderation in core inflation and ease in inflation expectations of both consumers and businesses in the latest surveys,” read the official statement.
At the same time, the MPC viewed some upside risks to the near-term inflation outlook associated with the upcoming budgetary measures and uncertainty regarding future energy price adjustments.
Notwithstanding these risks and the decision to cut the policy rate, the Committee noted that the cumulative impact of the earlier monetary tightening is expected to keep inflationary pressures in check.
