December 05, 2024 (MLN): The State Bank of Pakistan (SBP) has room to cut the policy rate by 250 basis points, given the substantial rise in the real interest rate after recent inflation figures fell below the central bank's target of 5-7%, Khurram Schehzad, Advisor to the Finance Minister, stated today while speaking to a news channel.
However, he was of the view that the SBP is likely to reduce the policy rate gradually, adopting a prudent approach.
Meanwhile, market consensus suggests a potential rate cut of 150 to 250 basis points.
Such a move would provide significant support to industries and substantially reduce the country’s interest payments by approximately Rs1.3 trillion, which are currently seen as the most significant drain on national resources. This reduction could ultimately improve Pakistan’s fiscal position.
Going ahead, he shared that a reduction in the policy rate would lower debt servicing costs for existing loans as well as new ones, creating the capital necessary to support the country’s economic growth.
On another positive note, food prices have eased, providing relief to the general population.
Additionally, energy prices have also declined comparatively, both factors being severely crucial for developing countries like Pakistan.
Under food items, onions, chicken Pulse, and Fresh vegetables have witnessed a notable decline. Accordingly, the overall inflation in the country eased to 4.9%, the lowest reading since April 2022, or 78 months to be precise.
The central bank's stance on this declining inflation trend has been robust, as it has already reduced the policy rate by 700 basis points since June 2024.
Hence, Khurram Schehzad further shared his outlook that further reductions are on the cards.
