Business Desk
Sep 12, 2024
Indicating the government's well-considerate policy-making while surpassing experts' estimations, the Monetary Policy Committee (MPC) on Thursday slashed the key interest rate by 200 basis points (bps) to 19.5%, as experts were pointing to a maximum drop of 150bps.
The significant drop in the key policy rate comes for the third consecutive session in the backdrop of a slightly downward trend of inflation ratings.
“The Monetary Policy Committee (MPC) decided to reduce the policy rate by 200 bps to 17.5% in its meeting today.” read a statement released by the SBP, adding that it took into “account various factors impacting the inflation outlook”.
The statement added that the MPC “assessed the real interest rate to still be adequately positive to bring inflation down to the medium-term target” of 5-7% and help ensure macroeconomic stability.
The MPC attributed the decision of such a steep drop in policy rate to a significant plunge in global oil prices and the SBP’s foreign reserves standing at $9.5 billion on Sept 6 despite weak inflows and continued debt repayments.
“Third, secondary market yields of government securities have declined noticeably since the last MPC meeting. Inflation expectations and confidence of businesses have improved in the latest pulse surveys, while those of consumers have worsened slightly,” added the committee.
The fluctuations are thoroughly being examined by economic wizards, with expectations hovering between cautious optimism to demands for substantial cuts.
Before the current interest rate came into effect, the interest rate stood at 19.5% and the inflation rate in August was recorded at 9.6% which resulted in a 10% interest rate.
Outlining the inflation prospects, the MPC was of the view that the drop in August “reflected the impact of contained demand, reinforced by improved supplies of major food items.”
