SBP’s rate cut signals lower inflation, yet Pakistanis face rising costs on essentials.
- Families Feel the Squeeze: Essential Goods and Utilities Become Unaffordable
- Voters Criticize Government’s Optimistic Inflation Data as ‘Out of Touch
- Job Scarcity and Low Wages Deepen Economic Insecurity for Young Pakistanis
- Critics Say Rate Cuts Won’t Curb Inflation Without Addressing Root Causes
- Surge in Auto Loans Expected to Worsen Pollution and Fuel Prices in Pakistan
KARACHI: In a move aimed at stimulating a struggling economy, the State Bank of Pakistan (SBP) announced another cut to its policy rate on Monday, lowering it by 250 basis points (bps) to bring the rate down from 17.5% to 15%. This marks the fourth consecutive rate cut since June 2024. The SBP’s Monetary Policy Committee (MPC) cited a rapid decline in inflation as the primary reason for the cut, stating that inflation has approached its medium-term target range. However, public sentiment tells a starkly different story.
For many Pakistanis, the central bank’s decision offers little relief in the face of skyrocketing prices and financial burdens. A deep disconnect appears to exist between the official inflation figures and the reality that ordinary citizens face daily.
The Rate Cut vs. Real-World Inflation
While SBP and government officials have presented recent inflation data optimistically, citizens feel this portrayal is disconnected from reality. Daily essentials, from food items to utility bills, have become progressively unaffordable, and there’s a tangible frustration among people who feel abandoned by policy decisions that seem to overlook their financial struggles.
Shakir Hussain, a 50-year-old laborer, expressed his disbelief at the SBP’s report on reduced inflation. “I haven’t seen any decrease in prices; in fact, it’s quite the opposite,” he said while purchasing cooking oil at a local shop in Karachi’s F.B. Area. “Everyday items like ghee and vegetables cost more each month. How is this inflation slowing down?”
Families Struggle to Make Ends Meet
Standing outside a general store, Ms. Hina, a mother of three and small business owner, shared a similar perspective. She works from her home kitchen, delivering cooked meals online, but the price hikes have eaten into her business. “I had to increase my food prices just to keep up with grocery costs, and that’s driven some customers away,” she explained. “My kids’ future worries me. I don’t see any relief.”
In recent months, milk prices have surged by 20 rupees per liter, while potatoes, once available at around 40-50 rupees per kilogram, are now being sold at a staggering 120 rupees per kilogram. These increases have disproportionately impacted low- and middle-income households, who are finding it harder each month to cover basic expenses.
Public Anger on ‘Misleading’ Inflation Data
Local News spoke to over 100 people, many of whom voted for the ruling parties, such as PML-N, PPP, and MQM, hoping for economic improvement. Instead, they voiced frustration, accusing the government of spreading “false news” about inflation reduction while prices continue to soar.
“Government statements about inflation going down feel like an insult,” said Ayesha, a teacher in Karachi. “They act like we’re not smart enough to know when prices are actually going up.”
The policy rate cut, meant to ease borrowing costs and boost economic activity, has yet to reflect in the cost of living for most Pakistanis. Utility bills, another significant financial burden, continue to climb, with electricity, gas, and water costs reaching unaffordable levels for many.
A Grim Job Market Adds to Woes
The economic strain is further compounded by a lackluster job market. For many young professionals, finding stable employment remains a challenge, making it difficult for them to support their families or envision a prosperous future.
“There are fewer jobs, and those that exist don’t pay enough to keep up with these prices,” said Bilal, a recent university graduate. “It feels like every aspect of the economy is getting worse, not better.”
Policy Critics Question SBP’s Strategy
While the SBP’s rate cut may temporarily support businesses by lowering borrowing costs, critics argue that it fails to address the structural issues underlying inflation. Analysts point out that without meaningful efforts to stabilize food prices and improve employment, the positive effects of monetary easing will remain limited.
Dr. Masood Kazmi, an economic analyst, said, “The SBP seems overly optimistic. Lowering interest rates can only do so much when the root causes of inflation – such as import costs, energy prices, and insufficient domestic production – are not addressed.”
The Gap Between Policy and Reality
This recent rate cut has raised questions about the government’s and SBP’s understanding of the struggles faced by ordinary Pakistanis. With a widening disconnect between official inflation statistics and the actual cost of living, it remains to be seen whether this policy shift will bring any meaningful relief to the public. For now, many Pakistanis continue to grapple with rising prices, deepening financial insecurity, and a sense of disillusionment with their leaders’ approach to economic recovery.
Increased Borrowing, Auto Financing Surge Could Worsen Environmental and Economic Strain
The recent rate cut is also expected to stimulate borrowing, particularly in auto financing, as lower interest rates make car loans more attractive. This rush for auto loans could bring unintended consequences. With more people able to afford vehicles, traffic congestion in urban areas like Karachi and Lahore may worsen, increasing fossil fuel consumption. This uptick in fuel use will contribute to pollution, exacerbating already dire air quality and environmental conditions.
Pakistan, which already grapples with high levels of particulate matter and carbon emissions, may see a rise in respiratory illnesses and environmental degradation as a result. Additionally, higher demand for fuel is likely to drive up oil product prices, creating a new cycle of inflation on essential goods, as transportation costs are a major factor in overall price levels. This side effect further underscores the need for a balanced approach, as rate cuts alone cannot address Pakistan’s broader economic and environmental challenges.