KARACHI: The Institute of Cost and Management Accountants of Pakistan (ICMA) has commended the State Bank of Pakistan (SBP) for reducing the policy rate by 200 basis points to 13%, effective December 17, 2024. This bold move reflects the Monetary Policy Committee’s (MPC) responsiveness to declining inflation and the evolving economic landscape, aligning closely with market expectations.
The rate cut comes as inflation dropped to 4.9% year-on-year in November, driven by lower food prices and favorable global commodity trends. ICMA highlighted that this decision will energize Pakistan’s agriculture and industrial sectors, bolster external stability, and support long-term inflation control.
Key Inflation Insights:
ICMA pointed out several crucial inflation indicators shaping monetary policy:
- Consumer Price Index (CPI): A marked decline due to falling food prices and global trends, offering immediate relief to consumers.
- Core Inflation: Remaining high at 9.7%, reflecting structural challenges such as costly production and supply chain inefficiencies, which demand sustained reforms.
- Sensitive Price Index (SPI): Regular monitoring of essential commodity prices remains vital to protecting lower-income households.
Signs of Economic Recovery:
The economy is showing early recovery signals, with October marking a third consecutive current account surplus, an 8.7% boost in exports, steady remittance inflows, and foreign exchange reserves reaching $12 billion. However, challenges persist, as tax revenue growth of 23% from July to November FY25 still fell short of targets.
Strategic Recommendations:
To sustain this recovery momentum, ICMA proposed several measures:
- Gradual Rate Cuts: Reduce the policy rate further to 7-8% by mid-2025 to promote investment and lower borrowing costs.
- Monetary-Fiscal Coordination: Strengthen collaboration to stabilize the exchange rate and maintain inflation control.
- Structural Reforms: Lower energy costs, improve supply chains, and address long-term inflationary pressures.
- Targeted Subsidies: Provide relief to lower-income households through efficient monitoring and subsidy programs.
ICMA emphasized that aligning these initiatives with SBP’s proactive monetary policy will create a favorable environment for sustainable growth, enhanced business confidence, and increased investment.
