KARACHI – The State Bank of Pakistan (SBP) on Thursday slashed the interest rates by 2%, a move which was expected given a marked decrease in inflation.

It means the key policy rate now stands at 17.5% against the previous level of 19.5%, after Monetary Policy Committee (MPC) decided to go for another rate cut by 200 basis points.

The reasons mentioned by the central bank are decline in oil and food prices as well as delaying the planned energy tariff hikes.

“Both headline and core inflation fell sharply over the past two months. The pace of this disinflation has somewhat exceeded the Committee’s earlier expectations, mainly due to the delay in the implementation of planned increases in administered energy prices and favorable movement in global oil and food prices.”

The latest rate cut is the third in a row as Pakistan has been witnessing a constant decline in inflation during the past months. Last year saw the SBP hiking rates to 22%, a record high in the country’s history.

Earlier, the consumer price index (CPI) in August rose 9.6% year-on-year, marking a 34 month-low.

The decision is expected to boost large-scale manufacturing and other business activities which will also produce employment opportunities at a time when the people have been hit hard by shrinking purchasing power.

“The MPC noted the following key developments since its last meeting that have implications for the macroeconomic outlook,” reads a statement issued by the central bank.

First, global oil prices have fallen sharply, though they remain volatile. Second, SBP’s FX reserves are around $9.5 billion as of September 6, despite weak official FX inflows and continued debt repayments.”

“Third, secondary market yields of government securities have declined noticeably since the last MPC meeting,” it added.

“Fourth, inflation expectations and confidence of businesses have improved in the latest pulse surveys, while those of consumers have worsened slightly. Lastly, the FBR tax collection during July-August 2024 was lower than the target.”