State Bank makes major reduction in interest rate by 200bps to 17.5%

The State Bank of Pakistan has decided to reduce the policy rate by 200 basis points to 17.5% due to a significant decline in inflation over the past two months. This decision will be effective from September 13, 2024. The Monetary Policy Committee acknowledged the uncertainty in global oil prices and the improvement in inflation expectations and business sentiment. The real GDP growth outlook for FY25 is between 2.5% to 3.5%, supported by easing inflationary pressures. Workers’ remittances and export earnings are expected to help contain the current account deficit, while fiscal consolidation and reforms are necessary to meet revenue targets and strengthen macroeconomic stability. Inflation has decreased, but risks remain due to high core inflation and consumer inflation expectations. Overall, the MPC sees a possibility of inflation falling below the earlier forecast range for FY25.