Latest updates on Interest Rates. The State Bank of Pakistan has recently decreased another 100 BPS points, leading to an interest rate of 12% effective from January 28, 2025. This will be the sixth slash since June 2024, making a drop from 22% to 12%, a 1,000-point slash. Today we will understand what are the expected effects of lower interest rates on the economy of Pakistan.
12% Interest Rates Will Push Slow Economy Forward
Higher interest rates discourage people from investing their money in different industries who often take bank loans to start a business or construct a house. Therefore, as the state bank interest rate has decreased to 12%, it will encourage investors to do more business and it will boost economic activities in the country. According to the analysis given by SBP, the slash of 1000 bps points has also resulted in the rise of economic activities and higher sales of automobiles, petroleum products, and fertilizers.
Impact of Low Interest Rates on Real Estate
The real estate industry in Pakistan always fluctuates due to many factors mainly inflation, taxes, and government policies. Previously due to a higher interest rate of 22% since June 2023, the real estate industry experienced a slowdown. People stepped back from taking home loans, and investors kept their money in the banks to get more profits. However, experts assume that the decrease in the SBP interest rate will encourage people to take bank loans for property developments. It will also encourage people to invest their savings in real estate.
Those who wanted to earn good profits from their bank savings in the form of higher tax rates, will now take out the money and invest in different industries including real estate. On the other side, builders and construction companies will also increase the construction of projects. Therefore, the demand for real estate will also rise owing to the interest of investors in property.
A Decrease in Inflation Rate
As we discovered, the possible effects of low interest rates on inflation the data hinted toward economic growth and inflation ease due to the decrease of 1000 points for the last six months. The central bank’s unexpected move of slashing the historic interest rate from 22% to 12% will further ease the inflation in the coming months. This was the analysis of the Governer State Bank Jameel Ahmad. However, the core inflation will remain at 5.5% to 7.5% till June 2025.
Higher Consumer Spending
The low interest rate of 12% will result in higher consumer spending on cars, houses, stocks, automobile products, and other high-ticket products. Therefore, a drop in interest rates will have a positive impact on the overall economic health of the country. Lower interest rates will also help businesses to expand, and a positive trend in consumer-focused industries such as the auto industry is also expected. A decline in returns on deposits will prompt alternative investments including car property and car financing. Monetary policy cuts will also help regain activities in high-leverage industries including textiles, cement, and steel.
A simple understanding is that low interest rates will generate more investments in the construction industry. People will buy property according to their needs by taking bank loans. However, if you want to skip the interest and buy a property, avail of interest-free payment plans from different companies. You can purchase luxury apartments in Bahria Town or commercial shops on a 1% Payment Plan with 0% interest. Here are the details about the 1% Payment Plan.
Thanks to the Central Bank, new consumers, and new investors will now enter the market, however, the bank reserves might decline as people will pull out their savings and invest them in different sectors to earn more profits.