The State Bank of Pakistan has landmark decided to decrease interest rates by one percent. The governor, Jameel Ahmed, declared this during a press briefing on monetary policy and added that the rate would be reduced from 20.5% to 19.5%.
Grounds for such a Decision
Governor Jameel Ahmed said that after a thorough overview of monetary policy, it was decided that 100bps should reduce the policy rate. He stated that the country’s economy is improving, and the new policy rate will be effective on Tuesday. It should be noted that the present account deficit stands at just $700 million in 2020, with improvements made so far, while last year it was almost $3 billion. Moreover, State bank have shown improvement in foreign exchange reserves.
Improvements in Economic Indicators
He stressed that imports are already back to normal, and despite this development, reserves have improved. External debt payments are being made as scheduled, signaling economic growth. He also said there were fears over foreign acquiesces due to delayed profits recall. But now banks have allowed them all their dividends and profits; hence, investors have been given their respective returns.
Investor Confidence and Economic Growth
He further noted an increase in investor confidence when dividends and profits worth $2.2 billion were earned compared with figures of only $300 million during 2024, which means greater than seven times within a year alone. However, even if these earnings were not realized, the current account deficit would still be minimized further. Other expenditures, including payments on airlines and as royalties, show a broader economic recovery.
Inflation and Policy Measures
Gradual Decline in Inflation
Last month, inflation stood at 12.6%, indicating a gradual decline in the country’s prices. Governor Jameel Ahmed disclosed that the central bank does not restrict importation from abroad’.’ Imports have increased to about $4.9 billion against $3.5 billion. The 2019 import bill has grown, with imports amounting to approximately $4.9 billion compared to last year’s 3.5 billion due to the fall in prices and decline in the volume of oil imports.
Maintaining Positive Real Interest Rates
The MPC stressed maintaining the current monetary policy. With a high positive real interest rate aimed at reducing inflationary pressure to a target range of 5-7% by September 2026. In addition, the committee highlighted that commodity prices have come down in the international market. While recent geopolitical events have increased uncertainty, leading to inflation.
Fitch Upgrades PaPakistan’sredit Rating
After seven months, Fitch Pakistan’s Reditedit rating went upwards from -CCC to+CCC. Indicating an improvement in the country as a direct result of the IMF loan agreement. The FiFitch’seport foresees that this fiscal year could see the current account deficit remaining at 1%GDP the next budgetary budget having foreign exchange reserves of up to $22bn.
Structural Reforms and Economic Outlook
However, structural changes are needed, such as energy sector reforms and State Bank-owned enterprises. An increase in the tax-to-GDP ratio by 12 percent. Overall, Pakistan has seen better performance under the Stand-By Arrangement program with the IMF, which resulted in improved economic conditions alongside higher forex reserves.
The Prime Minister and Finance Minister’s upgrading of Fitch Ratings indicates an improvement in the economy. These measures have put the nation on the right path, with prospects of increasing. Its credit rating is improving Pakistan’s economic status.
