On Monday, the State Bank of Pakistan (SBP) lowered its policy rate by 100 basis points to 19.5%, effective July 30, 2024.

The Monetary Policy Committee (MPC) noted that June 2024 inflation was slightly better than expected and that the inflationary effects of the FY25 budget were in line with predictions. Improvements in the external account were seen, as evidenced by the increase in SBP’s FX reserves despite significant debt repayments.

Read more: SBP Reports Slight Decrease in Reserves

The MPC decided to reduce the policy rate to support economic activity, given the positive real interest rates and a narrowed current account deficit. Reserves increased from $4.4 billion to over $9.0 billion, and a staff-level agreement was reached with the IMF for a $7.0 billion EFF program. Despite worsening inflation expectations and volatile oil prices, the policy rate cut aims to manage inflation while aligning with global trends of monetary easing.