The Monetary Policy Committee (MPC) of the State Bank of Pakistan (SBP) has continued its accommodative stance, reducing the policy rate by 200 basis points (bps) to 13% effective from December 17, 2024. This marks a cumulative reduction of 900 bps since June 2024, with five consecutive cuts. The decision was largely driven by factors such as inflation aligning with expectations, fiscal and external sector stability, favorable global commodity prices, and improved growth prospects for the economy.
The reduction in the policy rate is part of a broader effort to maintain economic stability and support growth in the face of various challenges. As of the period from July 1 to November 29, FY2025, the money supply (M2) showed a negative growth of 0.6%, or Rs 215.7 billion, compared to a growth of 1.2%, or Rs 376 billion, during the same period last year. Within M2, the banking system’s Net Foreign Assets saw a significant increase of Rs 385.3 billion, compared to Rs 100.8 billion last year. However, the Net Domestic Assets of the banking sector decreased by Rs 601 billion, compared to an increase of Rs 275.2 billion in the previous year.
In terms of government borrowing, the government has repaid Rs 2,018.6 billion in FY2025 against Rs 2,894.2 billion in the previous year, reflecting prudent fiscal management. On the other hand, private sector borrowing has risen to Rs 1,148.6 billion, a stark contrast to the retirement of Rs 33.2 billion during the same period in FY2024.
The positive impact of the accommodative monetary policy is clearly visible in the performance of the Pakistan Stock Exchange (PSX). November 2024 saw the KSE-100 index continue its bullish momentum, crossing the 100,000 points landmark and closing at 101,357 points by the end of the month. This was a gain of 12,391 points in November alone, indicating strong investor confidence and growing market optimism.
In line with the growth in the index, the market capitalization of the PSX increased by Rs 1,349 billion during the month, settling at Rs 12,885 billion. This surge highlights the favorable market conditions, driven by the policy rate cut and improved economic indicators. The positive performance of the stock market, combined with the easing of borrowing costs, has encouraged investment and contributed to a favorable outlook for the economy.
With the government’s focus on fiscal consolidation, improved fiscal and monetary policy measures, and a rebound in the external sector, the outlook for Pakistan’s economy and financial markets remains positive. The PSX’s upward trajectory is expected to continue, providing much-needed support for economic growth and investor confidence in the coming months.