KARACHI: The Institute of Cost and Management Accountants of Pakistan (ICMA) has lauded the State Bank of Pakistan’s (SBP) Monetary Policy Committee (MPC) for its decisive action to cut the policy rate by 200 basis points, bringing it to 13%, effective December 17, 2024. The decision, prompted by a significant decline in inflation to 4.9% year-on-year in November, reflects a pragmatic approach to economic realities and aligns with investor expectations.
ICMA noted that easing food prices and favorable global commodity trends played a key role in reducing inflation, marking a turning point for Pakistan’s economic outlook. The organization emphasized that this policy adjustment would stimulate growth in the agriculture and industrial sectors, enhance external stability, and sustain inflation management.
Key Inflation Trends Highlighted
In its analysis, ICMA underlined the importance of key inflation indicators influencing monetary policy:
- Consumer Price Index (CPI): A sharp decline due to easing food prices and global trends, providing immediate relief to consumers.
- Core Inflation: Elevated at 9.7%, signaling structural challenges such as high production costs and supply chain inefficiencies, necessitating long-term reforms.
- Sensitive Price Index (SPI): Monitoring weekly commodity prices for lower-income households remains crucial for designing targeted interventions.
Economic Recovery Indicators
Pakistan’s economy has shown signs of recovery, with a third consecutive current account surplus in October, an 8.7% rise in exports, robust remittance inflows, and foreign exchange reserves climbing to $12 billion. However, fiscal challenges persist, as tax collections fell below targets despite a 23% growth in Federal Board of Revenue (FBR) revenues during July-November FY25.
Policy Recommendations
To sustain and strengthen the economic recovery, ICMA proposed:
- Further Policy Rate Cuts: Gradual reduction to 7-8% by mid-2025 to spur investment and lower borrowing costs.
- Monetary-Fiscal Coordination: Enhanced collaboration to stabilize the exchange rate and manage inflation effectively.
- Structural Reforms: Efforts to reduce energy costs, streamline supply chains, and address persistent inflationary pressures.
- Targeted Subsidies: Providing price relief to lower-income households through effective monitoring and subsidy programs.
ICMA emphasized that coupling these measures with SBP’s monetary policy would create a conducive environment for sustainable economic growth, boost business confidence, and encourage investment.
