KARACHI: In an effort to spur growth amid a strong decrease in retail inflation, the State Bank of Pakistan (SBP) cut its key interest rate by 150 basis points on Monday. This was the bank’s first rate cut in nearly four years.
Two days prior to the budget presentation, the key rate was lowered to 20.5% in response to data indicating that inflation in May reached a 30-month low of 11.8%.
The Monetary Policy Committee (MPC) declared that although the notable decrease in inflation since February was expected, the rate of inflation in May exceeded expectations.
The Committee observed that tight monetary policy and fiscal consolidation are reducing underlying inflationary pressures.
However, because of impending fiscal actions and uncertainty surrounding future energy price adjustments, the MPC highlighted certain risks to near-term inflation.
Notwithstanding these dangers, the Committee thinks that the accumulation of earlier monetary tightening will contribute to containing inflationary pressures.
According to a Topline Research study, 43% of respondents anticipated a 100bps rate cut, while 48% of respondents to a CFA Society Pakistan poll indicated they anticipated a drop of up to 100bps. According to a Bloomberg survey, 63% of respondents expected a 100bps drop.
