KARACHI, December 16 2024: The State Bank of Pakistan (SBP) has reduced the policy rate by 200 basis points, bringing it to 13%, effective December 17, 2024. This decision reflects the bank’s efforts to balance economic recovery and inflation stabilization. Headline inflation fell to 4.9% in November 2024, driven by lower food prices and the fading impact of last year’s gas tariff hike. However, core inflation remains sticky at 9.7%, with inflation expectations still volatile.
Key Highlights:
1. Inflation and Economic Growth:
- Headline inflation eased, allowing for a cut in the policy rate.
- Economic growth indicators have shown improvement, with real GDP growth for FY25 projected in the upper range of 2.5%–3.5%.
- Growth prospects in agriculture have strengthened due to better cotton arrivals and encouraging wheat sowing patterns.
- Large-scale manufacturing (LSM) sectors, including textiles, food, automobiles, and cement, are exhibiting robust growth.
2. External Sector Stability:
- The current account posted a $0.2 billion surplus during July–October FY25, marking three consecutive months of improvement.
- Exports grew by 8.7%, driven by high-value textiles, rice, and petroleum products.
- Workers’ remittances remained strong, bolstering foreign exchange reserves, which now stand at $12 billion.
- Declining global commodity prices have eased pressure on domestic inflation and reduced the import bill.
3. Private Sector and Credit Growth:
- Private sector credit witnessed significant growth, supported by the relaxation of financial conditions and compliance with ADR thresholds by banks.
4. Revenue and Fiscal Challenges:
- The Committee noted a widening shortfall in tax revenues, which may pose fiscal challenges going forward.
Forward Guidance:
The SBP acknowledged that the full impact of policy rate cuts since June 2024 will unfold over the next few quarters, with easing financial conditions supporting economic activity. The real policy rate remains appropriately positive, providing space to stabilize inflation within the 5%–7% target range.
Outlook:
The SBP remains cautiously optimistic about sustained growth, driven by improving business confidence, easing inflationary pressures, and external account stability. This policy adjustment aims to support economic recovery, strengthen exports, and attract investment, ensuring sustainable development while maintaining macroeconomic stability.
This decision underscores SBP’s proactive role in addressing Pakistan’s economic challenges and fostering long-term growth.
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