Pakistan’s central bank cuts key rate first time this year as inflation slows
PAKISTAN’S central bank cut its key interest rate for the first time since June 2013 as inflation eased and the government prepares its global Islamic bond sale.
The State Bank of Pakistan lowered the discount rate to 9.5 per cent from 10 per cent, the central bank said in a statement on its website.
Five of 12 economists in a Bloomberg survey predicted the move while one saw a cut to nine per cent and the rest forecast no change.
“Limited impact of f loods and a favorable trend in global commodity prices are the main reasons behind the central bank’s decision, according to the statement.
“Given its recent downward trend, the likelihood for inflation to end the current fiscal year on a lower plateau is high.”
The move helps Prime Minister Nawaz Sharif’s efforts to boost the economy as his opponents prolong a four-month protest to oust him.
The stock index rose to a record and the rupee to its strongest in about three months after the International Monetary Fund (IMF) said on November 8 that Sharif’s economic overhaul is “broadly on track.”
“Inflationissolowthatthere’sno justification for such a high rate,” Sana Abdullah, head of research at Global Securities Pakistan Ltd in Karachi, said by phone before the decision.
“Falling oil prices will also lessen the burden on our oil import bill.”
Consumer prices rose 5.82 per cent in October from a year earlier, the slowest pace since May 2013, as Brent crude costs fell to a four-year low.
That pushed the inf lationadjusted discount rate to about four per cent compared with a traditional preference for two per cent, creating room for the cut, Abdullah said.
South Asia’s second-largest economy is improving on most fronts as the IMF prepares to release a US$1.1 billion loan tranche in December. Gross domestic product will grow 4.3 per cent in the year through June 2015, the IMF predicts, faster than a 4.1 per cent expansion the previous year.
The government may issue US$500 million of Islamic debt by the month-end, Finance Minister Ishaq Dar said in Dubai November 8, reviving a sale initially scheduled for September.
That could boost foreignexchange reserves, which grew to US$14 billion in September from US$8.7 billion at the end of 2013.
Risks emerge from protests by opposition leader Imran Khan, who’s demanding Sharif resign on allegations of vote-rigging in last year’s election.
Khan has said he will announce a new strategy after November 30 to renew pressure on Sharif.
The KSE100 index, which rose to a record on November 12, fell 0.3 per cent to 31,344.07 at close November 14.
The rupee closed almost unchanged at 101.69 to the US dollar after reaching its strongest in almost three months on November 10. — Bloomberg