Pakistan’s central bank has reduced the policy rate by 2 percentage points to 17.5%, effective September 13, 2024. The Monetary Policy Committee (MPC) made this decision due to a significant drop in headline and core inflation over the past two months. The decrease in inflation was higher than expected, driven by lower global oil and food prices.
Despite this, the MPC noted that there is still some uncertainty surrounding these developments, which calls for a cautious approach to monetary policy. Analysts were surprised by the 200 basis points cut, noting that it aligns with broader expectations. Additionally, foreign exchange reserves remain stable at about $9.5 billion, even with weak official FX inflows and ongoing debt repayments. Business confidence and inflation expectations have also improved according to recent surveys.
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