SBP Governor
After the State Bank of Pakistan (SBP) reduced the key policy rate to 13% in response to declining inflation, SBP Governor Jameel Ahmed cautioned on Monday that inflation is expected to rise again after staying low for the next three to four months.
Speaking on the program “Aaj Shahzeb Khanzada Kay Saath,” Ahmed explained that inflation could increase due to the “end of the base effect and some other factors in the pipeline.” He emphasized the need for the central bank to monitor core inflation closely, which remains a factor of concern.
While overall inflation has decreased significantly, the governor acknowledged persistent risk factors that could affect economic stability. He assured that these risks would be carefully monitored by the SBP.
However, he expressed optimism, stating that economic indicators were turning positive, with inflation dropping to 4.9% in November, a sharp decline from 38% recorded just 1.5 years ago.
Ahmed reassured that any upcoming rise in inflation would not be alarming, as it is expected to stabilize over time. He projected that it would take four to six quarters for the full impact of the reduced key policy rate to materialize in terms of economic growth and consumer behavior.
By the end of the fiscal year in June 2025, Ahmed anticipates inflation will align with the medium-term target range of 5-7%.
The SBP governor also highlighted the government’s ability to manage foreign debt payments, citing improved foreign reserves of $12 billion as a result of consistent current account surpluses over the past three months.
Furthermore, the government stands to save approximately Rs1,500 billion following the reduction in interest rates.
Earlier in the day, the SBP announced a 200 basis point cut in the key policy rate, marking its fifth consecutive reduction since June. This move is part of broader efforts to revive Pakistan’s economy amidst easing inflation.
In November, the consumer price index (CPI) registered at 4.9%, in line with the Monetary Policy Committee’s (MPC) expectations, driven by declining food inflation and the phasing out of the gas tariff hike impact.
However, core inflation remains at 9.7%, with volatile inflation expectations among consumers and businesses.
The MPC highlighted Pakistan’s progress, including maintaining a positive real policy rate to stabilize inflation within the 5-7% target. It also noted that Pakistan’s economic recovery is being supported by a $7 billion International Monetary Fund (IMF) facility secured in September.
However, the bank stressed that considerable efforts are needed to achieve the annual revenue targets outlined in the IMF agreement.
The SBP’s decision follows previous rate cuts of 150bps in June, 100bps in July, 200bps in September, and a record 250bps in November.
These measures have reduced the policy rate from a peak of 22% to 13%, totaling a cumulative cut of 900bps since June 2024. The SBP remains committed to steering the economy toward stability and growth.
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