The State Bank of Pakistan (SBP) has announced a fourth consecutive cut in the key interest rate, reducing it by 250 basis points to 15 percent, effective November 4, 2024. This decision was made following a meeting of the bank’s Monetary Policy Committee (MPC), marking a significant reduction in the policy rate over the past four months.
Background and Rationale
The SBP’s decision to cut the interest rate comes amid a continued decline in inflation and efforts to support economic recovery. October inflation dropped to 7.2 percent, the lowest in three and a half years, prompting the central bank to ease its monetary policy stance. The SBP has now reduced the policy rate by a total of 700 basis points in the last four monetary policy meetings.
Impact on the Economy
The reduction in the policy rate is expected to have a positive impact on the economy, particularly in sectors such as agriculture and industry. Lower interest rates can stimulate borrowing and investment, leading to increased economic activity and growth. Analysts believe that the rate cut will help revive a fragile economy and support the ongoing recovery efforts.
Market Reaction
The announcement of the interest rate cut was met with positive reactions from the financial markets. Investors and traders welcomed the move, anticipating that it will boost market confidence and attract foreign investment. The reduction in the policy rate is seen as a step towards achieving economic stability and fostering a favorable investment climate.
Read More: Pakistan’s Inflation Rate: October 2024 Update
Expert Opinions
Economists and financial experts have expressed support for the SBP’s decision, highlighting the importance of maintaining a consistent policy stance to sustain the downward trend in inflation. Mustafa Pasha, Chief Investment Officer at Lakson Investments, stated that rates must drop under 15 percent and hold below that for six months to have a material impact on the economy. The IMF’s latest report also offers a cautiously optimistic view for Pakistan’s economic trajectory, forecasting a GDP growth rate of 3.2 percent for FY25.
Conclusion
The State Bank of Pakistan’s decision to cut the key interest rate for the fourth time in four months reflects a commitment to supporting economic recovery and maintaining stability. The reduction in the policy rate is expected to stimulate economic activity and boost market confidence, contributing to the overall growth of the economy. As the SBP continues to monitor inflation and other economic indicators, the focus remains on sustaining the current momentum and achieving long-term stability.