The State Bank in Pakistan (SBP) announced on Monday that it reduced the main policy price by 100 basis points to 12 percent, as of January 28, 2025.
This represents the reduction of the sixth rate since June 2024, which leads to a decrease in the policy rate by 1,000 cumulative points from 22 percent.
At a press conference, the SBP Jameel Ahmed governor made the decision taken by the MPC Monetary Committee earlier in the day. He said that the reduction occurred with the position of inflation in mind and noticed many positive trends in the economy.
“The current inflation numbers are encouraging, and we expect more declines in January,” the ruler said. However, he warned that basic inflation is still high.
He also highlighted the positive trend in transfers and reserves in foreign currencies, saying: “We keep our view of $ 13 billion in reserves by June.”
Ahmed pointed to an improvement in exports and transfers, which kept the current account in a positive position. “The trend in transfers is good, as well as export numbers, which is important to maintain the surplus of the current account,” he said.
SBP’s monetary policy statement confirmed that inflation was 4.1 percent on an annual basis in December, a decrease from 4.9 percent in November. The statement attributed the declining trend to moderate domestic demand, the conditions of the stable supply side, and a favorable basic effect.
However, he has warned that basic inflation pressure is continuing and that inflation is expected to rise in the coming months.
MPC has noticed many developments since its last meeting. The real GDP growth of the Q1-FY25 is slightly lower than the expectations at 0.9 percent, a decrease from 2.3 percent in the Q1-FY24, due significantly to the growth of the slow agricultural sector.
The current account recorded a $ 0.6 billion surplus in December, which raised the H1-FY25 excess to $ 1.2 billion, with support from strong transfers and export profits. However, tax revenues, despite the remarkable increase in December, remained less than the goal in the H1-FY25, and global oil prices showed volatility, which increased economic uncertainty.
The SBP ruler also dealt with the recent adjustments to the cabinet bill rates, which were reduced by up to 41 basis points at the last auction. This step reflects the market expectations to reduce policy prices. Financial analysts significantly expect 100 basis points announced by MPC.
The statement also indicated that the dominance of manufacturing on a large scale (LSM) has managed, with some major industrial sectors such as textiles and cars that show improvement. However, the Q1-FY25 GDP data indicated a slowdown in the growth of the agricultural sector, which amounted to 1.2 percent compared to 8.1 percent in the same period last year.
On the external front, SBP highlighted the strong export performance led by high -value -added textiles and widely accelerated in imports. While the import bill outperformed export profits, strong transfers flow helped compensate for the trade deficit.
The current account balance is now expected to remain between a small surplus and a impotence of 0.5 percent of the FY25 GDP.
Upon financial performance, SBP noticed a 26 percent increase on an annual basis in FBR revenues through H1-FY25, although the deficiency of the target was wide. And note that the existing expenditures, along with low interest payments, are likely to maintain the financial deficit around their goal.
The Central Bank has reported that the growth of the money supply may slow down, driven by the low growth of the pure local assets and the transformation of government borrowing into sources other than banks. Despite the slowdown, private sector credit has grown sharply, reflecting the economic recovery and the ongoing efforts made by banks to meet the deposit rates (ADR).
In conclusion, SBP indicated that the average inflation is expected to range between 5.5 and 7.5 percent for the fiscal year 25. MPC confirmed that the monetary policy position will remain cautious to ensure the stability of prices and sustainable economic growth. Ahmed reiterated that the central bank will continue to monitor economic trends closely and control its policies accordingly.
