SBP chief underscores over Rs1tr savings due to rate cut

KARACHI
State Bank of Pakistan (SBP) Governor Jameel Ahmad has said that the reduction in the government’s interest expense leads to total savings of Rs1.3 trillion which amounts to around 1% of gross domestic product (GDP), The News reported on Tuesday.
Speaking at an analyst briefing, the SBP governor noted that the government’s total interest expense for the fiscal year 2025 is now estimated to be Rs8.5 trillion, compared with Rs9.8 trillion projected in the budget for the current fiscal year and that savings will aid in controlling the fiscal deficit for FY25.
His remarks come after the central bank, on Monday, slashed the key policy rate by 250 basis points (bps) to 15%, at least 0.5% more than the market expectations, marking its fourth consecutive cut as inflation remains in single digits through October.
Noting that the current monetary policy has sufficient flexibility to manage fluctuations of 10-15% in oil prices and other commodities, Ahmad said that the reduction in interest rates and the timely use of surplus funds for debt profiling is expected to significantly lower the government’s debt servicing costs in FY25.
He further said that the Asian Development Bank (ADB) was likely to disburse around $500 million to Pakistan soon, which will increase the forex reserves to more than $11.5 billion.
He also projected that the reserves could reach $13 billion by June 2025.
Pakistan is expected to receive $500 million in loans from the Asian Development Bank (ADB) in the coming weeks, which will help boost the country’s foreign exchange reserves, said the central bank’s governor.
Meanwhile, analysts present at the briefing noted that the governor highlighted a positive trend in Pakistan’s external position during the first four months of the current fiscal year.
He expects this trend to continue, with remittances for October estimated to exceed $3 billion. This development is anticipated to reduce the current account deficit to a negligible level for the July-October period.
The current account recorded a surplus for the second consecutive month in September 2024, reducing the cumulative deficit to $98 million in the first quarter of FY25. Despite a significant increase in imports, strong workers’ remittances and higher exports have helped contain the deficit.
Additionally, the receipt of the first tranche under the International Monetary Fund (IMF) loan programme contributed to the increase in SBP’s reserves, which reached $11.2 billion as of October 25. Furthermore, the SBP purchased $1.3 billion from the interbank forex market in June and July to bolster reserves and repay external debt.