SBP cuts key policy rate by 150bps to 20.5%

The State Bank of Pakistan (SBP) announced on Monday that it has cut the interest rate by 150 basis points (bps), bringing it down to 20.5 percent.

This rate reduction precedes the annual budget and follows recent data showing a drop in inflation to a 30-month low of 11.8% in May.

In a statement, the SBP mentioned that the central bank’s Monetary Policy Committee (MPC) had convened earlier today to review current economic developments.

The committee observed that “underlying inflationary pressures are also easing amidst a tight monetary policy stance, supported by fiscal consolidation.”

However, the MPC also noted “some upside risks to the near-term inflation outlook related to the upcoming budgetary measures and uncertainties regarding future energy price adjustments.”

Previously, a survey conducted by Topline Securities revealed that 90% of participants expected a rate cut, although they varied in their estimates of the reduction, ranging from 100 to 300 basis points.

Experts indicated that the State Bank remained cautious despite room for a significant rate cut, due to the considerable gap between the headline consumer inflation of 11.8% and the prior policy rate of 22%.