THE decision by SBP to reduce the key policy rate by 100 bps to 12% is a significant move in ongoing efforts to stabilize and revitalize economy. This marks the sixth rate cut since June 2024, bringing the policy rate down from a staggering 22%, signalling a shift towards economic recovery. The continuous reduction in interest rates indicates that the economic situation is heading in the right direction, and it offers hope that the worst of the economic challenges may have passed.
While there is still room for further rate cuts, particularly if inflation continues to ease, the current decision reflects a pragmatic approach to economic management. The SBP’s actions should be viewed as part of a broader strategy to create a more conducive environment for growth, investment and job creation. One of the most immediate and tangible benefits of this policy change will be the stimulation of economic activity, especially in the private sector. Lower interest rates reduce the cost of borrowing, making it easier for businesses to access credit for expansion. This can lead to greater investment in industries, job creation and overall economic growth. It is also crucial that the banking sector provide more accessible financing options to both established businesses and new entrants, including SMEs. Another crucial aspect that must not be overlooked is the facilitation of the middle-income groups, especially those who do not own homes. A significant portion of the population remains unable to access home financing due to the high interest rates and stringent requirements. With the new, lower policy rate, there is now an opportunity to make housing loans more affordable and accessible for these groups. This can help address the housing crisis while improving the standard of living for millions of Pakistanis. As we look forward, the policy rate reduction could well prove to be a turning point, with far-reaching benefits for businesses, individuals, and the economy as a whole.
