Pakistan central bank cuts key rate by 100 bps to 12 per cent

Pakistan’s central bank cut its key policy rate by 100 basis points to 12 per cent on Monday, for a sixth straight reduction since June as the country attempts to revive business and economic sentiment amid easing inflation.

The State Bank of Pakistan has slashed rates by 1,000 bps from an all-time high of 22 per cent in June 2024, one of the most aggressive moves among central banks in emerging markets and exceeding its 625 bps of rate cuts in 2020 during the COVID-19 pandemic.

The bank’s governor Jameel Ahmad said at a press conference that the inflation rate would ease further in January but noted core inflation remained elevated. He said the forecast for full-year inflation in the year to June was an average of 5.5 per cent-7.5 per cent.

“Considering these developments and evolving risks, the Committee viewed that a cautious monetary policy stance is needed to ensure price stability, which is essential for sustainable economic growth,” the bank’s monetary policy committee (MPC) said in a statement accompanying the decision.

“In this regard, the MPC assessed that the real policy rate needs to remain adequately positive on a forward-looking basis to stabilise inflation in the target range of 5 - 7 per cent.”

Fourteen of 15 analysts surveyed by Reuters expected the central bank to cut its key rate by at least 100 bps mainly due to a drop in inflation.

Pakistan’s consumer inflation rate slowed to an over 6-1/2-year low of 4.1 per cent in December, largely due to a high year-ago base. That was below the government’s forecast and significantly lower than a multi-decade high of around 40 in May 2023.

Pakistan’s economy grew 0.92 per cent in the first quarter of fiscal 2024-25 which ends in June, according to data approved by the National Accounts Committee, and released by its Statistics Bureau in December.

The governor said the bank maintained its forecast of full-year GDP growth at 2.5 per cent-3.5 per cent.

Meanwhile Pakistan’s consumer inflation rate slowed to 4.1 per cent year on year in December, the statistics bureau said, the lowest in more than 6-1/2 years.

The South Asian country is navigating a challenging economic recovery path buttressed by a $7 billion facility from the International Monetary Fund (IMF) granted in September.

Consumer prices in December rose 0.1 per cent from the month before, according to the Pakistan Bureau of Statistics.

In its monthly report released last week, the finance ministry said that the annual inflation rate was expected to hold in the range of 4-5 per cent in the final month of the year.

Annual inflation had already slowed to 4.9 per cent in November, largely due to a high base a year earlier, coming in below the government’s forecast and significantly lower than a multi-decade high of around 40 per cent in May 2023.

“Inflation has come down on the back of stable currency, lower global commodity prices and improved supply chain,” said Samiullah Tariq, head of research and development at Pak Kuwait Investment Company.

Pakistan’s central bank previously targeted 5-7 per cent inflation in the medium term but its head has said the level is now in sight within the next 12 months.

The State Bank of Pakistan (SBP) cut its key policy rate by 200 basis points to 13 per cent in December, the fifth straight reduction since June, to bring cumulative rate cuts for 2024 to 900 basis points and making it one of the most aggressive emerging market central banks in the current easing cycle.

KARACHI: Pakistan’s consumer inflation rate slowed to 4.1 per cent year on year in December, the statistics bureau said, the lowest in more than 6-1/2 years.

The South Asian country is navigating a challenging economic recovery path buttressed by a $7 billion facility from the International Monetary Fund (IMF) granted in September.

Consumer prices in December rose 0.1 per cent from the month before, according to the Pakistan Bureau of Statistics.

In its monthly report released last week, the finance ministry said that the annual inflation rate was expected to hold in the range of 4-5 per cent in the final month of the year.

Annual inflation had already slowed to 4.9 per cent in November, largely due to a high base a year earlier, coming in below the government’s forecast and significantly lower than a multi-decade high of around 40 per cent in May 2023.

“Inflation has come down on the back of stable currency, lower global commodity prices and improved supply chain,” said Samiullah Tariq, head of research and development at Pak Kuwait Investment Company.

Pakistan’s central bank previously targeted 5-7 per cent inflation in the medium term but its head has said the level is now in sight within the next 12 months.