SBP cuts interest rate by 150bps to 20.5 per cent
KARACHI: (Suno News) The State Bank of Pakistan (SBP) has decided cut the interest rate by 150 basis points (bps) to 20.5 per cent due to decline in inflation for May.

 In an emergency meeting held in June 2023, the SBP last changed the policy by raising the interest rates by 100 basis points to a record high of 22pc.

The SBP said in a statement on Monday that its Monetary Policy Committee (MPC) had met earlier today and reviewed the current economic developments. The meeting highlighted “better than anticipated” decrease in inflation for the last month.

“Underlying inflationary pressures are also subsiding amidst tight monetary policy stance, supported by fiscal consolidation”, the MPS said regarding the decision to cut the key rate to 20.5pc.

“Some upside risks to the near-term inflation outlook associated with the upcoming budgetary measures and uncertainty regarding future energy price adjustments,” the committee said.

The MPS further stated that real GDP growth remained moderate at 2.4pc “with subdued recovery in industry and services partially offsetting the strong growth in agriculture”.

It maintained, “Second, reduction in the current account deficit has helped improve the foreign exchange (FX) reserves to around $9 billion despite large debt repayments and weak official inflows.”

“The real interest rate still remains significantly positive, which is important to continue guiding inflation to the medium-term target of 5–7pc,” it noted.

It added, “The government has also approached the IMF for an Extended Fund Facility programme, which is likely to unlock financial inflows that will help in further build-up of FX buffers.”

In a survey conducted by Topline Securities, some 90pc of participants had predicted a rate cut, but they differed over the extent of the reduction, with estimates ranging from 100 to 300 basis points.