The State Bank of Pakistan is set to announce its new monetary policy on September 12, with analysts predicting a potential decrease in the policy rate by 2 to 2.5 per cent.
SBP Governor Jameel Ahmed would preside over the Monetary Policy Committee meeting in Karachi, where the current economic situation of the country would be reviewed.
Analysts suggest that following a significant drop in the inflation rate to its lowest level in nearly three years at 9.6 per cent, a reduction in the policy rate is likely.
The Consumer Price Index, a key indicator of inflation, fell to 9.6% in August from 11.1% in July, presenting an opportunity for the central bank to consider lowering interest rates, as urged by economic stakeholders.
In the last monetary policy meeting on July 29, the SBP had already reduced the interest rate by 100 basis points to 19.5%.
But representatives from trade and industrial sectors have expressed that this rate remains too high to effectively boost economic activity. They are calling for a reduction to approximately 14%, arguing that the current high rates are a significant barrier to private sector borrowing due to their prohibitive costs.
Pakistan struck a deal last month with the International Monetary Fund for a $7 billion loan programme that includes tough measures such as higher taxes on farm incomes and electricity prices.
The prospect of such moves has worried poor and middle class Pakistanis. But inflation has started moving on a downward trend, albeit from a high base.
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In an interview with Reuters this week, central bank chief Jameel Ahmed said recent interest rate cuts in Pakistan have had the desired effect, with inflation continuing to slow and the current account remaining under control, despite the cuts.
“Even though interest rates are expected to come down over the medium term, it is unlikely that demand would return to earlier levels,” Sheikh said, citing rises in electricity and fuel prices.
“This puts the government back in the Catch 22 situation, whereby stimulating growth also stimulates balance of payment crisis,” he added.
