Karachi (Web Desk): On Monday, the Monetary Policy Committee (MPC) of the State Bank of Pakistan announced a decision to reduce the policy rate by 250 basis points, bringing it down to 15%, effective November 5, 2024. This adjustment lowers the previous rate of 17.5%.
According to the MPC, the inflation has decreased more swiftly than expected, nearing its medium-term target range by October.
It pointed out that the stringent monetary policy has played a crucial role in maintaining this downward trend.
Factors such as a significant reduction in food inflation, favourable global oil prices, and the absence of anticipated hikes in gas tariffs and petroleum development levy rates have all contributed to a quicker pace of disinflation in recent months.
However, the committee recognized potential risks that could lead to short-term volatility in inflation before it stabilizes within the target range.
The MPC also reviewed various developments since their last meeting that may influence the macroeconomic outlook.
The recent approval of Pakistan’s new Extended Fund Facility (EFF) programme by the IMF Board has helped reduce uncertainty and enhanced prospects for expected external inflows.
As per the surveys conducted in October, show a rise in confidence among consumers and businesses, alongside a reduction in inflation expectations.
Additionally, yields in the secondary market for government securities and the Karachi Interbank Offered Rate (KIBOR) have significantly dropped, though tax revenue in the first four months of FY25 fell short of projections.
While global oil prices have experienced notable volatility due to escalating geopolitical tensions, prices for metals and agricultural products have seen marked increases.
Taking all these factors into consideration, the MPC concluded that the current monetary policy stance is well-suited to achieve sustainable price stability, with an aim to keep inflation within the 5-7% target range.
The committee believes that this strategy will also foster macroeconomic stability and promote sustainable economic growth.