The State Bank has announced a further 1% reduction in the interest rate, bringing it to 12%.
The GDP growth rate is expected to remain at 3.5%. Core inflation is currently at 9.1%, but it is anticipated to drop to 5-7% by the end of the fiscal year in June, according to Governor of the State Bank, Jameel Ahmad.
Karachi (Web News)
The State Bank of Pakistan (SBP) has announced a further 1% reduction in the interest rate for the next two months. Governor Jameel Ahmad, speaking at a press conference after the Monetary Policy Committee’s meeting, stated that the interest rate is now 12% following the reduction. The committee reviewed the country’s economic performance and various factors during the meeting. Governor Ahmad explained that the current account was in surplus by $1.2 billion during the first six months of the fiscal year, compared to a $1.4 billion deficit in the same period last year. This has helped improve foreign exchange reserves.
He mentioned that inflation had sharply decreased over the past few months, particularly dropping to 4.1% in December from last year’s peak. The State Bank has been able to intervene in the market because of these factors, and further inflation reduction is expected this month. The core inflation rate remains at 9.1%, but it is projected to be between 5-7% by the end of the fiscal year in June. He also stated that inflation numbers from other sectors are expected to fluctuate accordingly.
The Governor mentioned that remittances and export figures are also showing positive trends. Inflation had been expected to range from 11.5% to 12%, but due to a reduction in supply-side issues and other factors, inflation has decreased quickly. The inflation rate for FY 2025 is expected to remain between 5.5% and 7.5%. He noted that remittances in the first half of the fiscal year amounted to $1.2 billion, compared to $2.2 billion in the previous year. Other sectors, including the banking sector and airlines, have resolved their payment issues.
Jameel Ahmad further highlighted that imports in December exceeded $5 billion, a significant increase compared to the same period last year. This was partly due to lower oil payments in November, and Pakistan’s economy heavily relies on imported oil. He clarified that imports are continuing as expected and that when economic activities improve, such imports are normal. He also mentioned that the liquidity available in the market is helping to manage imports without issues, but it will still be monitored to keep track of the situation.
The Governor pointed out that Pakistan’s economic indicators are positive, with inflation and the current account deficit significantly reduced. Inflation, which had been 38% in May 2023, is now down to 4.1%, with a further reduction expected in January. He also mentioned that workers’ remittances and export numbers are good, and the country’s total foreign exchange reserves stand at $16.19 billion. He noted that two-thirds of the external debt has been repaid, which has reduced a large portion of the foreign debt. The debt-to-GDP ratio is not rising, and multilateral inflows are expected as well. Between $2.3 billion and $2.4 billion was paid in December and January. Despite repaying these loans, reserves have decreased by $700 to $800 million.
Governor Ahmad assured that the external account situation remains satisfactory and is expected to stay positive in the future. He also mentioned that foreign exchange payments have been made on time during the past year, with only minor delays due to incomplete documentation. Banks have been instructed to make immediate payments once the documentation process is complete. External payments increased from $331 million to $2.2 billion, and in the first half of this fiscal year, $1.2 billion has been sent abroad.
It is important to note that the State Bank had previously reduced the interest rate by 9% in five consecutive reviews. In June 2024, the interest rate was at its highest level of 22%, and the last reduction was made on December 17, 2024, when the policy rate was cut by 2% to 13%.