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Pakistan’s central bank, the State Bank of Pakistan (SBP), has announced a reduction in its policy rate by 100 basis points, bringing it down to 19.5%. This change, effective from the day following the announcement, reflects the bank’s strategic move to bolster economic activity amid a challenging economic environment.
The decision was made by the Monetary Policy Committee (MPC) of the SBP, which stated that the reduction aims to support economic growth while maintaining control over inflationary pressures. The central bank’s statement highlighted that there is room for a “calibrated” reduction in the policy rate to stimulate economic activity. This move is part of a broader strategy to navigate Pakistan’s economic challenges, including high inflation and sluggish growth.
The central bank’s decision follows a period of high-interest rates aimed at curbing inflation, which has impacted both consumers and businesses. By lowering the policy rate, the SBP hopes to make borrowing cheaper, encouraging investment and spending, which could lead to increased economic activity. This approach is intended to stimulate various sectors of the economy, including manufacturing and consumer goods, which have been under pressure from the high cost of financing.
The rate cut also aims to provide relief to businesses struggling with high interest expenses, potentially leading to an improvement in business sentiment and expansion plans. Furthermore, it may ease the financial burden on consumers facing high loan repayments.
Historically, the SBP has used policy rate adjustments as a tool to manage economic conditions, balancing the need for growth with the necessity of controlling inflation. The recent rate cut reflects the bank’s ongoing efforts to adapt to the evolving economic landscape and support sustainable growth.