Karachi January 27 2025: At its meeting today, the Monetary Policy Committee (MPC) decided to cut the policy rate by 100 bps to 12 percent, effective from January 28, 2025.
The Committee noted that inflation continued to trend downward in line with expectations, reaching 4.1 percent y/y in December. This trend is driven by moderate domestic demand conditions and supportive supply-side dynamics, amidst favorable base effect.
Inflation is expected to come down further in January before inching up in the subsequent months. The Committee also noted that core inflation, while continuing to ease, is still at an elevated level. At the same time, high frequency indicators continued to show gradual improvement in economic activity. The MPC assessed that the impact of the significant reduction by 1,000 bps in the policy rate since June 2024 will continue to unfold and further support economic activity.
The Committee noted the following key developments since its last meeting. First, real GDP growth in Q1-FY25 turned out slightly lower than the MPC’s earlier expectations. Second, the current account remained in surplus in December 2024, though the SBP’s FX reserves declined amidst low financial inflows and high debt repayments. Third, despite a substantial increase in December, tax revenues remained below target in H1-FY25. Fourth, global oil prices have exhibited heightened volatility over the past few weeks. And lastly, the global economic policy environment has become more uncertain, prompting central banks to adopt a cautious approach.
Considering these developments and evolving risks, the Committee viewed that a cautious monetary policy stance is needed to ensure price stability, which is essential for sustainable economic growth. In this regard, the MPC assessed that the real policy rate needs to remain adequately positive on a forward-looking basis to stabilize inflation in the target range of 5 – 7 percent.
