State Bank of Pakistan has announced a one percent reduction in interest rates

The State Bank of Pakistan, the central bank of Pakistan, has announced a one percent reduction in interest rates in the country.

Speaking to the media at a news conference in Karachi on Monday, State Bank of Pakistan Governor Jameel Ahmed announced a one percent i.e. 100 basis point reduction in interest rates.

He further said that ‘Now the interest rate in Pakistan has come down from 20.5% to 19.5%.’

Before that State Bank of Pakistan It was said in the statement for the next two months Monetary policy will make the announcement today (July 29) in the meeting of the Monetary Policy Committee and the same evening the policy will also be announced.

A statement issued by the central office of the State Bank said that the meeting of the Monetary Policy Committee will be held today (July 29) to decide on the monetary policy for the next two months.

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A recent survey by Topline Securities, a major brokerage firm in Pakistan, revealed that 75 percent of businessmen expect interest rates to drop.

According to the survey, 60 percent of traders have predicted a decline of 100 basis points. This expectation is likely to fall to 19.5% in July 2024 due to an expected decline in inflation.

If it happens, the adjustment would be the second consecutive major monetary policy cut after the 150 basis point reduction made for the first time since June 2020.

Topline Securities estimates that interest rates could fall further by June 2025 as inflation is forecast to average between 13 percent and 13.5 percent for fiscal 2025.

The real interest rate is around 790 basis points with inflation of 12.6 percent by June 2024 and will adjust to around 850 basis points with the expected cut today.

This level gives the central bank enough flexibility to deal with external economic shocks or the lagged effects of monetary policies

Furthermore, since the last meeting of the Monetary Policy Committee on June 10, 2024, both the six-month Karachi Interbank Offered Rate (KAIBOR) and the six-month Treasury Bills rate have decreased by 83 to 84 basis points, which now stand at 19.84% and 19.84%, respectively. is at 19.52 percent.

This reinforces market interest rate expectations.

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IMS Research also forecast a 100 bps rate cut that would bring the policy rate to 19.5 percent as the consumer price index is expected to fall to 10.8 percent in July.

Pakistan has signed a staff-level agreement with the International Monetary Fund (IMF) for a 37-month extended bailout program worth around $7 billion. The deal is expected to boost the central bank’s foreign exchange reserves.

The government’s tight fiscal stance provides scope for fiscal easing to accelerate growth. The Federal Board of Revenue (FBR) has set a target of 40% increase in tax collection for FY25.

According to IMS, the equity market is expected to be positive for the continuation of fiscal easing especially after the 3.5% correction in the Pakistan Stock Index due to political uncertainty.

However, global economic factors such as the cautious stance of major central banks such as the US Federal Reserve and the European Central Bank may affect the timing of domestic central bank monetary easing.

Additionally, political instability in Pakistan may affect financial performance and delay external funding.