Real interest rate: Similar trend seen in regional countries
Real interest rate comes to negative 0.17% following discount rate hike.
KARACHI:
The country’s real interest rate comes to a negative 0.17 per cent following the discount rate hike on Monday, which is in line with average real interest rates in the emerging markets of the region.
The average real interest rates of Asian economies and Gulf Cooperation Council (GCC) region are between -0.1 and -2.6 per cent. This suggests that the State Bank of Pakistan (SBP) is not behind the curve and the trend is similar to that prevailing in the emerging economies, according to JS Global Capital.
The country’s discount rate stands at 14 per cent while average CPI inflation for first four months of fiscal 2011 at 14.17 per cent, bringing the country’s real interest rate at -0.17 per cent. The real interest rate is approximately the interest rate minus the inflation rate.
The SBP announced another hike of 50 basis points to 14 per cent in the policy rate on Monday. It has hiked interest rate in all three monetary statements in fiscal year 2011.
Among Asian counterparts, India and Singapore offer negative real interest rates of -4.2 per cent and -3.3 per cent, respectively.
India, especially, has seen its inflation soar to 8.1 per cent, which has forced its central bank to increase the key policy rate six times since January.
The trend of negative real interest rates seems more evident in the GCC region, with Saudi Arabia, Kuwait and Oman all having policy rates, at least 380 basis points below the average inflation level.
Looking further, Venezuela currently stands out with a negative real interest rate of -8.3 per cent, with inflation hovering around 30 per cent and the discount rate standing at 22 per cent. In contrast, Brazil has its policy rate at 10.75 per cent, while its inflation level stands at 5 per cent, offering a positive real interest rate of 5.3 per cent.
Published in The Express Tribune, November 30th, 2010.
The country’s real interest rate comes to a negative 0.17 per cent following the discount rate hike on Monday, which is in line with average real interest rates in the emerging markets of the region.
The average real interest rates of Asian economies and Gulf Cooperation Council (GCC) region are between -0.1 and -2.6 per cent. This suggests that the State Bank of Pakistan (SBP) is not behind the curve and the trend is similar to that prevailing in the emerging economies, according to JS Global Capital.
The country’s discount rate stands at 14 per cent while average CPI inflation for first four months of fiscal 2011 at 14.17 per cent, bringing the country’s real interest rate at -0.17 per cent. The real interest rate is approximately the interest rate minus the inflation rate.
The SBP announced another hike of 50 basis points to 14 per cent in the policy rate on Monday. It has hiked interest rate in all three monetary statements in fiscal year 2011.
Among Asian counterparts, India and Singapore offer negative real interest rates of -4.2 per cent and -3.3 per cent, respectively.
India, especially, has seen its inflation soar to 8.1 per cent, which has forced its central bank to increase the key policy rate six times since January.
The trend of negative real interest rates seems more evident in the GCC region, with Saudi Arabia, Kuwait and Oman all having policy rates, at least 380 basis points below the average inflation level.
Looking further, Venezuela currently stands out with a negative real interest rate of -8.3 per cent, with inflation hovering around 30 per cent and the discount rate standing at 22 per cent. In contrast, Brazil has its policy rate at 10.75 per cent, while its inflation level stands at 5 per cent, offering a positive real interest rate of 5.3 per cent.
Published in The Express Tribune, November 30th, 2010.