ISLAMABAD – State Bank of Pakistan (SBP) is expected to cut policy rate by 100-150 basis points in the April 29 monetary policy review.
Researchers suggest that central bank will cut policy rate by 100 to 150 basis points at the upcoming Monetary Policy Committee meeting. SBP is expected to lower record high interest rate amid declining trend of inflation and a stagnating economic growth situation.
Despite arguments for maintaining the current interest rate, some analysts claim that the conditions are favorable for rate cut. They argue that the average forward 12-month inflation is expected to be around 15-16pc, making the current interest rate of 22 percent relatively high.
Cheaper financing could potentially boost economic activities, sources said. The current high rate significantly affected the economy, particularly the manufacturing sector.
In the current FY, the central bank kept its policy rate unchanged at 22pc, waiting dip in inflation. The inflation rate has indeed started to slow down, reaching 20.pc in March, with expectations of further deceleration to 17pc in April, as projected by both the Ministry of Finance and SBP.
Some relief in inflationary pressures would boost economic activities, which have remained subdued in FY23 and FY24.
The sky-high interest rates also led to costly borrowing from commercial banks, with the government borrowing Rs5.3 trillion in FY24 and facing challenges in debt servicing.
Overall, a rate cut is seen as necessary to support economic growth, especially as international organizations like the IMF and the World Bank have predicted Pakistan’s GDP to expand by 2pc in FY24.
