SBP governor says policy rate to come down in phases

State Bank of Pakistan (SBP) Governor Jamil Ahmad has said that the policy rate would come down in phases.Addressing an event organized by the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) in Karachi on Thursday, the SBP governor said the inflation target was expected to remain from five to seven percent this financial year (FY).He informed that in December 2024, the country’s current account was in surplus and would remain in surplus throughout the current FY. He said that now there were no restrictions on imports by the banks.The SBP governor said the pace of inflation is expected to lower further in January, followed by fluctuations over the next 4-5 months.Ahmad declared that the country is positioned “to fully resume economic activity”.Jamil Ahmad noted that the inflation rate decreased significantly from 38% to 4.1% recorded in December 2024. He said as per the SBP assessment, by the end of 2025, inflation is expected to stabilize within the target of 5-7%, which is within the State Bank and government’s medium-term target.”The SBP remains committed to achieving its target, which will provide long-term relief,” he said, adding “However, volatility may disrupt businesses and impact the common man.”Following the slowing pace of inflation, the Monetary Policy Committee (MPC) of the SBP reduced the key policy rate by 200 basis points to 13%. This was the fifth successive cut since June 2024 when the rate stood at 22%.On the current account situation, the SBP chief expressed that the country’s current account is “in very good condition”, amid an increase in remittances and exports. “Our exports have not grown as expected and it needs to be further taken upwards. Without an increase in exports, we will continue to face current account and balance of payment issues,” he added.About remittances, Jamil Ahmad shared that remittance flows are projected to “comfortably achieve” the $35 billion level in the current fiscal year. He also shared that Pakistan’s foreign debt stood at nearly $100 billion in June 2022, which remained stable at $100.8 billion by September end. The marginal increase is mainly due to revaluation adjustments, he maintained.The SBP governor also urged commercial banks to take further initiatives to facilitate SMEs. “We need to facilitate SMEs because its expansion helps in employment generation and positively contributes to the revival of economic activity,” Ahmad opined.The governor said the country was meeting its economic targets, with its debt level and balance of payments still under control.The SBP chief highlighted that the country’s external debt level had remained the same as it was in 2022. “Overall, Pakistan’s foreign debt volume has improved significantly,” he said, highlighting that the actual foreign debt stood at more than $100.08 billion.”Foreign debt has also increased by 500 million dollars due to revaluation of debt,” he stated, adding he hoped that “Pakistan’s current account will remain in surplus in December as well”.He added that the money borrowed this year was mostly through multilateral institutions and that short-term debt was being paid by long-term debt. “Debt servicing would improve and the balance of payments situation will ease,” he said.He also highlighted that the biggest challenge faced by the authorities was the balance of payments, however, he said the country had enough dollars to meet external demands. “The issue of balance of payments rises when we exceed growth by 4pc and we don’t have the foreign exchange component capacity to meet that, then that growth turns unsustainable,” he explained, adding the balance of payment issue has also impacted industries.”Growth should be sustainable because if it’s not sustainable, we will be back to square one,” he said, highlighting that exports would need to be increased to make growth sustainable.Furthermore, the governor said there were little hiccups in foreign investors’ profit repatriation, highlighting that while the foreign investors’ dividend repatriated stood at $331 million, in 2024 $2.2 billion were repatriated.”This year, $1.1 billion have already been repatriated — as of right now, foreign investors don’t have an issue with dividend repatriation,” he said and added “This year’s current account and inflation will be better, as I already told you inflation.” may have some fluctuations.”