Karachi (EWN) State Bank has announced a 2% reduction in interest rate to 17.5%. The bank says that during the last two months both the headline and core inflation have decreased sharply, while oil and food Global commodity prices have hit a record low. Inflation is slowing faster than the committee's expectations. Average inflation during FY25 is likely to be lower than the previous forecast of 11.5-13.5 percent. According to the details, State Bank's Monetary Policy Committee (MPC) has reduced the policy rate by 200 basis points (bps) to 17.5%, making the biggest reduction since April 2020. The statement said the pace of deceleration in inflation was slightly higher than the Committee's earlier expectations, mainly due to delays in the implementation of planned increases in energy prices and favorable fluctuations in global oil and food prices.
This is the third consecutive rate cut by the State Bank after June 2024. At the same time, the committee acknowledged the domestic uncertainty surrounding the situation, which necessitated a cautious monetary policy stance, according to the Bank, which has seen global oil prices fall sharply, low government foreign exchange inflows and continued debt repayments. Despite this, as of September 6, the foreign exchange reserves of the State Bank are approximately 9.5 billion dollars. According to the latest Pulse Survey, inflation expectations and business confidence improved, while consumer expectations deteriorated slightly, while FBR's tax collection was less than the target during July-August 2024. Keeping in view the potential risks and today's decision, the MPC estimates that real interest rates are still sufficiently positive to bring down inflation to the medium-term target of 5-7 percent and ensure economic stability. Can help.
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