The State Bank of Pakistan’s Monetary Policy Committee (MPC) has responded to calls for a significant interest rate reduction by slashing the key policy rate by 200 basis points, bringing it down to 17.5% from 19.5%. This decision was announced on Thursday.

“The Monetary Policy Committee (MPC) decided to reduce the policy rate by 200 bps to 17.5 percent in its meeting today,” a statement released by the SBP read, adding that it took into “account various factors impacting the inflation outlook”.

Financial analysts had predicted a more moderate decrease of 150 to 200 basis points. The MPC’s upcoming decision is particularly significant, following previous cuts totaling 2.5 percentage points over the past months.

Although inflation had surged to 38% earlier this year, recent declines have created an opportunity for the government to enhance liquidity in the private sector.

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Experts believe that lowering borrowing costs could stimulate investment and economic activity, which is essential for job creation, particularly for the youth.

The projected growth rate for the current fiscal year is expected to rise to 3.5% from 2.4% in FY24.