The State Bank of Pakistan’s Monetary Policy Committee (MPC) is set to meet tomorrow to review the country’s monetary policy, with strong expectations for a significant interest rate cut amid widespread calls for such action.
Currently, the interest rate is at 19.5%, while inflation for August was recorded at 9.6%, resulting in a real interest rate of 10%. This substantial gap has led to demands for a major reduction, with industry leaders urging a cut of up to 500 basis points to stimulate economic growth.
Despite these calls, financial analysts are predicting a more moderate decrease, ranging from 150 to 200 basis points. The upcoming decision is particularly important given the MPC’s recent reductions, totaling 2.5 percentage points over the past few months.
Earlier this year, inflation had surged to 38%, but recent declines have provided an opportunity for the government to enhance liquidity in the private sector. Lowering borrowing costs could potentially spur investment and economic activity, which is crucial for job creation, particularly for the youth. The projected growth rate for the current fiscal year is expected to rise to 3.5%, up from 2.4% in FY24.
As the MPC’s meeting approaches, the focus is on whether the committee will opt for a substantial reduction in the interest rate to address economic challenges and support growth, or if it will take a more cautious approach.
