Business Desk 
Jul 29, 2024
As was expected, the State Bank of Pakistan (SBP) on Monday for the second consecutive session reduced the key interest rate by 100 basis points (bps) to 19.5% in the wake of low inflation ratings.
The reduction stemmed after thoroughly considering the previous month's relatively "better inflation", said the Monetary Policy Committee (MPC).
It should be noted that the previous cut in the key policy rate came on the heels of the long-delayed annual budget announced last month while breaking free from the shackles of a record-high policy rate of 22% which was well retained for the past 11 months.
After comprehensively analysing the current economic developments in the country, the central bank’s MPC underscored that the inflation of "June 2024 inflation was slightly better than anticipated."
As stated in an official statement released by the SBP, the external account continued to improve, as reflected in SBP’s foreign exchange reserves despite substantial repayments of debt and other obligations.
Due to these reasons, the committee was of the view that there was further room to reduce the policy rate in a calibrated manner to support economic activity while keeping inflationary pressures in check.
On positive developments, the statement said that the current account deficit had narrowed in the fiscal year 2024 and SBP’s FX reserves had “improved significantly from $4.4 billion at end-June 2023 to above $9.0 billion.”
Furthermore, the report highlighted that the country had reached a staff-level agreement with the International Monetary Fund (IMF) for a 3-year extended fund facility programme of $7bn.
As per the data provided by the Pakistan Bureau of Statistics (PBS), the headline inflation for June was noted at 12.6% on a year-on-year basis.
Although opinions had differed greatly on the extent of the reduction, market bigwigs were anticipating a rate cut given June’s inflation rate of 12.6%, significantly lower than the interest rate of 20.5%.
