KARACHI – State Bank of Pakistan slashes interest rate for third consecutive meeting amid drop in inflation and government aimed to revive economic growth.
The central bank lowered target rate by 200bps to 17.5cp, and the move aimed to boost economic development as inflation.
With the MPC’s key decision to lower interest rates, borrowing costs for businesses and consumers are set to drop. This reduction is anticipated to encourage investment and boost consumer spending. Analysts predict that businesses may seize this opportunity to expand operations, while consumers might increase expenditures on goods and services.
As the rate cut aimed to push economic activity, it carries potential inflationary risks. Increased demand resulting from cheaper credit could lead to higher prices if supply does not keep pace. Economists will be closely monitoring inflation trends in the coming months to assess any emerging pressures.
The cut in interest rate is also expected to influence value of Pakistani currency. The lower interest rates can put pressure on Pakistani currency, making exports more competitive but potentially increasing the cost of imports. SBP’s decision could thus have mixed effects on the trade balance.
On the other hand, Stock markets are expected to react positively to the rate cut, as lower rates generally make equities more attractive compared to bonds. Investors might see this as a signal of increased economic activity, leading to a potential rise in stock prices.
Notably, banking sector in Pakistan could also face tighter profit margins as result of lower interest rates. Reduced earnings from loan interest might impact banks’ lending capacities and financial stability. Observers will be watching to see how banks adjust their strategies in response.
State Bank of Pakistan slashes part of broader strategy to support economic growth amidst global uncertainties and domestic challenges. The effects of this decision will unfold over time, and policymakers will continue to assess its impact on Pakistan’s economic landscape.
