Another rate cut

The central bank has come up with a mixed assessment of the economy as it decided to slash the interest rate by 100 basis points - to 12 per cent from 13. This is the sixth time since June 2024 that the SBP's Monetary Policy Committee has opted for a cut in the policy rate, bringing it down from 22% to 12%. Experts, however, believe that there is enough uncertainty and the SBP feels jittery keeping in view the uncontrolled inflation despite signs of a dip at periodical intervals.

There are, nonetheless, a few positive trends that were reported such as the increase in the volume of remittances, gradual improvement in the economic activity and an expected decline in the prices for the month of January. That has enabled the authorities to target a forex reserve of $13 billion by June this year. There are setbacks too that were acknowledged by the SBP. The prime among them are the GDP growth remaining lower than expected; the current account hitting surplus in December last year; high-debt payments; and missed taxation targets amid volatility in global oil prices. That has kept the circle of growth and estimated projections in a wayward territory, compelling the currency monitors to intervene as and when desired. Last but not least, the SBP noted that the supply-side dynamics will keep inflation hovering over the heads for months to come, ushering in new risks and instability in prices.

Statistics suggest that the economy remains in the woods, and the government at times seems carried away with assumptions. Both macro- and microeconomic stability cannot be attained unless indigenous growth is substantiated with avenues of foreign exchange and investment pouring in. In order to achieve that, the exports must be competitive - something which is not possible with the present energy tariff. The SBP as the guardian of fiat is doing a smart job, but the trend of intervention out of fear is an unhealthy sign. All that is desired is that market forces and policy regulation must come to buoy the value of currency.