Pakistan

SBP cuts policy rate to 6%

Brokerage houses had forecast a downward revision of 50 basis points

Kazim Alam September 12, 2015

State Bank of Pakistan. PHOTO: EXPRESS

KARACHI: In view of declining inflation, the State Bank of Pakistan (SBP) on Saturday decided to reduce the policy rate by 50 basis points, or 0.5%, to 6% for the next two months.

The central bank adjusts the benchmark interest rate every two months mainly to address price stability and economic growth targets. The SBP’s decision to reduce the policy rate by 50 basis points is partly based on its expectation that average inflation, measured by Consumer Price Index (CPI), will remain 4.5%-5.5% for 2015-16.

Although the SBP listed both upside and downside risks to its inflation forecast, it noted that the probability of downside risks appear to be greater than the upside risks in view of the current economic trends.

Read: Analysts divided over status quo or rate cut

Saying that current account deficit “seems manageable,” the SBP stated the upward trajectory of the last two fiscal years in the foreign exchange reserves will likely maintain pace.

The SBP said the off-take of fixed investment loans by energy generation and distribution, chemicals and services sectors signal possible increase in their productive activity in coming months.

“The implementation of infrastructure development and energy projects under the China-Pakistan Economic Corridor will further enhance the improving investment environment. Therefore, there is anticipation of higher economic activity in 2015-16, which is expected to boost credit uptake,” it said.

COMMENTS (4)

Dr. S. M. Naeem Nawaz | 9 years ago | Reply Involuntary unemployment is the major issue for the countries like Pakistan and needs more focus. To have unemployment rate near to natural level, it may be necessary to follow the natural rate of inflation. I suppose, the investment is interest inelastic in Pakistan where uncertainty about the stance of Policy makers play significant role and the animal spirits are more important, the optimality is not achievable. Then fiscal monetary coordination is more important than fiscal dominance as the case is. As a matter of fact, the decrease in inflation is not a result of any structural change in the economy made through policy breakthrough but it is just by luck where oil prices are at its lowest and the exchange rate is over-appreciated. SBP is requested to consider the structure of the economy before taking any policy decision or following instructions of the Finance Division.

Malik | 9 years ago | Reply With a 6% rate, I wonder what the true worth of the Pakistani rupee would be, if it weren't artificially devalued at 100 rupee to a dollar. I would imagine at least a 30% increase in its worth if it were a free float without any government intervention - in other words with the present high demand of the rupee it could have easily been at 60 to 70 rupees to a dollar. Either way a 100 rupee to 1 dollar is a good idea. Keep it the rupee low, and enjoy the additional profits.

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Whiskey Khan | 9 years ago | Reply Cutting down the interest rate will make no difference, the economy will still remain status quo.

the Skunk | 9 years ago | Reply Bravo SBP! Very nice! Now the construction and manufacturing industries will get a big boost in cheaper raw materials and output of finished goods. Viva SBP! In fact, it will be a holistic boon for the Pakistan economy. Salams

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