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
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