Karachi (Web Desk): The State Bank of Pakistan (SBP) on Monday announced to cut the interest rate by 150 basis points (bps) to 20.5%.
The decision to cut the key rate to 20.5% comes ahead of annual budget and a week after data showed inflation slowed to a 30-month low of 11.8% in May.
In its statement, the Monetary Policy Committee (MPC) said that that while the significant decline in inflation since February was broadly in line with expectations, the May outturn was better than anticipated earlier.
The Committee assessed that underlying inflationary pressures are also subsiding amidst a tight monetary policy stance, supported by fiscal consolidation.
At the same time, the MPC highlighted “some upside risks to the near-term inflation outlook associated with the upcoming budgetary measures and uncertainty regarding future energy price adjustments”.
Regarding the key developments, the committee said that real GDP growth remained moderate at 2.4% “with subdued recovery in industry and services partially offsetting the strong growth in agriculture”.
It added that 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 SBP noted that “the real interest rate still remains significantly positive, which is important to continue guiding inflation to the medium-term target of 5–7%”.
“It said that the government has also approached the International Monetary Fund (IMF) for an Extended Fund Facility programme, which is likely to unlock financial inflows that will help in further build-up of FX buffers.