Pakistan’s central bank cuts interest rate by 2%

By Aamir Latif

KARACHI, Pakistan (AA) - Pakistan’s central bank on Thursday slashed its benchmark interest rate by 200 points to 17.5%, the second straight cut since July.

“The Monetary Policy Committee (MPC) decided to cut the policy rate by 200 bps to 17.5 per cent (from 19.5%), effective from September 13, 2024,” said a statement from the State Bank of Pakistan (SBP) after the committee’s meeting.

The widely expected move, also hailed by the business community, followed the SBP’s decision to gradually cut rates from a record high of 22% in June 2023.

Both headline and core inflation fell sharply over the past two months. The pace of this disinflation has somewhat exceeded the committee’s earlier expectations, mainly due to the delay in the implementation of planned increases in administered energy prices and favorable movement in global oil and food prices, the statement said.

At the same time, it added, the committee acknowledged the inherent uncertainty related to these developments, which warranted a cautious monetary policy stance.

Taking into account some key developments, including a sharp decline in global oil prices, the country’s consistent foreign reserves worth $9.5 billion despite weak official inflows and continued debt repayments, and inflation expectations and improving the confidence of businesses, the SBP assessed the real interest rate to still be adequately positive to bring inflation down to the medium-term target of 5-7% and help ensure macroeconomic stability.

This would be essential to achieve sustainable economic growth over the medium term, it added.

For the first time in three years, Pakistan's annual consumer price inflation rate slowed to 9.6% in August. It had soared to a record 37.97% in May of 2023.