In a bid to stimulate economic growth, Pakistan’s central bank has reduced its key policy rate by 100 basis points, bringing it to a 16-month low of 19.5%. The State Bank of Pakistan (SBP) has now revised the policy rate downward for the second consecutive time in just seven weeks, reflecting a response to the slowdown in inflation and the strengthening of the external economy. Cumulatively, the SBP has cut the policy rate by 250 basis points over the past seven weeks, a significant shift from the record high of 22% maintained until June 10, 2024. During a press conference, SBP Governor Jameel Ahmad explained that the impact of the central bank’s previously tight monetary policy has only recently started to manifest, as changes in the policy rate typically take about eight quarters to fully materialise. The significantly positive real interest rate provided room for the latest cut in the policy rate.
