Easy on the rate cuts

This letter refers to the news report ‘PM sees more room for policy rate cut’ (January 3, 2025). According to the news report, the prime minister said that the SBP-operated policy rate is currently at 13 per cent and there is room still for an additional eight per cent decrease, factoring in the current inflation rate.

I don’t think we should be that ambitious as far as interest rate cuts are concerned. Our economy is still faced with a multitude of issues so it would be pragmatic to go soft on policy rate cuts. After all, we would not want the scourge of inflation to rise up again; as a student of economics, I understand that at low or extremely low policy rates can encourage inflation. This would also stimulate imports and inflict abnormal pressure on our fragile rupee.

Abbas R Siddiqi

Lahore