Economy

Pakistan central bank cuts rates by record 250 bp, beating expectations

By Ariba Shahid

KARACHI (Reuters) – Pakistan’s central bank cut its key policy rate by a record 250 basis points to 15% on Monday, exceeding expectations, as the country bid to revive a sluggish economy amid a big drop in the rate of inflation.

Respondents in a Reuters poll last week expected a cut of 200 bps after inflation moved to 7.2% in October, a sharp drop from a multi-decade high of nearly 40% in May 2023, saying reductions were needed to bolster economic growth. The finance ministry expects inflation to slow further to 5.5% to 6.5% in November.

Pakistan has reduced interest rates by 700 bps since June in four consecutive cuts.

The State Bank of Pakistan (SBP) justified the rate cut, stating that the current monetary policy stance is suitable to achieve price stability and maintain inflation within the 5-7% target range.

“This will also support macroeconomic stability and help achieve economic growth on a sustainable basis,” it said.

Central Bank Governor Jameel Ahmad told analysts in a briefing following the rate cut decision that bilateral partner countries have assured the International Monetary Fund (IMF) that they will continue rollovers of their debt for the duration of Islamabad’s bailout program.

The IMF, in September, gave a boost to Pakistan’s struggling economy by approving a long-awaited $7 billion facility that will last 37 months.

Despite not providing revised figures, the bank anticipates that average inflation for the fiscal year ending in June 2025 will be significantly lower than the previous 11.5 to 13.5% forecast, and GDP growth for the current fiscal year will exceed previous expectations, though still be within the 2.5 – 3.5% targeted range.

Adnan Sheikh, assistant vice president at Pak Kuwait Investment Company, said the larger than expected cut indicated a rapid easing of inflation.

He noted the reduction is crucial for sectors like manufacturing, consumer, construction, and textiles, which are operating below optimum capacity, especially as purchasing power for ordinary citizens has plunged after a long period of rapid inflation.

Pakistan’s average inflation rate stands at 8.7% in the current fiscal year, according to the statistics bureau, with the IMF predicting an average 9.5% inflation rate for the year ending June.

October’s inflation rate was 7.2%, slightly above expectations. The finance ministry forecasts inflation to slow to 5.5-6.5% in November.

Some analysts warned inflation may pick up again in 2025 due to electricity prices and the potential impact of taxes on the retail, wholesale and farm sectors announced in the June budget that will take effect in January 2025.

This post appeared first on investing.com

You May Also Like

Editor's Pick

Sen. JD Vance (R-Ohio) and Minnesota Gov. Tim Walz (D) will face off Tuesday night at a CBS News vice-presidential debate in New York....

Latest News

A North Korean defector who escaped to the South more than a decade ago was detained after attempting to cross back into North Korea...

Economy

A U.N. human rights group confirmed Hamas’ leader in Lebanon, who was recently killed by Israeli strikes, was their employee.  Fateh Sherif was killed...

Investing

Astron (ASX:ATR) and Energy Fuels (TSX:EFR,NYSEAMERICAN:UUUU) have completed the establishment of a joint venture to advance the Australia-based Donald rare earths and mineral sands...

Disclaimer: balanceandcharge.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2024 balanceandcharge.com

Exit mobile version